Lecture 18: Profit On Operation, and Short-run Supply

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9 Terms

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Topic 1: Proft on Operation

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Profit on Operation

  • TR - SRVC & π= TR-TC= TR- SRVC- SRFC

    • TR- SRVC is profit on operation

  • A profitable firm will continue operating in the SR if the profits on operation are > $0


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Why would a firm continue to operate if profits on operation >$0

  • if q=0 the firm still must pay fixed costs.

  • so the firm wants to continue operating if profits are greater than -SRFC

  • the gap between revenue and variable cost could be allocated towards covering fixed cost



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Illustrate graphically a case where profit < $0 and profit on operation > $0 so (P> AVC). Will the firm stay open? Why?

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illustrate graphically a case where profit < $0 and profit on operation < $0 (P < AVC). Will the firm syau open in this case?

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In summary: Detail all the the outcomes with the relationship of P and min(SATC)

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what is the shutdown point

P = min(SAVC)

  • P > SAVC- stay open

  • P < SAVC - shutdown


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What is the breakeven point for firms

P= min(SATC)

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Short run supply curve for a firm and how it is derived:

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