Perfect Competition (copy)

What is short run loss and how does it happen?

When MC(where MR = MC) < ATC but MC > AVC

Continue producing since FC can still be paid, and AVC can be lowered until there is profit

What is a short run shutdown and how does it happen

When MC(where MR = MC) < AVC

Stop producing since FC can’t be paid no matter what, since FC doesn’t change

Market and Firm Profit is maximized when?

At the quantity where the MC = MR(or sometimes the last quantity where MC < MR

What is short run profit and how does it happen?

When MC(where MR = MC) > ATC

Keep producing as you are gaining money

Compare a SR(short run) single firm perf comp equilibrium to an industry equilibrium

Both caused by meeting of S(MC in single firm) and D(MR in single firm) curves

But in single firm equilibrium demand can not change, in industry supply and demand can change equilibrium

What is a break-even point?

Where MC=MR is = ATC

No profit, meaning firm can’t do any better, so it should continue to produce