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ECON 100A Lecture Notes - Lecture 36: Variable Cost, Market Power, Market Price

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sapphirecat382
10 Apr 2020
School
Berkeley
Department
Economics
Course
ECON 100A
Professor
David Card

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Document Summary

Rule 1: firm shuts down only if it can reduce its loss by doing so. If you"re losses are smaller if you shut down than if you operate. Rule 2: firm shuts down only if its revenue is less than its avoidable cost. If the amount of money in sr you take in is less than the cost you pay your labor, then you should shut down. By shutting down, firm eliminates avoidable costs: Basically, if revenue (r) is greater than variable cost, it should operate (r > Also, shut down if p < avc (shown below ex. Sr: firm compares its revenue to only its avoidable (variable) cost ignores sunk fixed costs. Firm can eliminate them by shutting down. Therefore, firm shuts down if lr profit is negative: < 0. Because competitive firm is a price taker, Market price, p, does not change if firm increases output. Competitive firm maximizes profit by setting output where mc = p.

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Related Questions

Say you are the manager of a perfectly competitive firm selling a product. Your business is making a loss because total revenue is less than total costs. What would you do--shut down or continue to operate? Use hypothetical numbers to explain. Information you need to provide include--state the product you are selling, the price of the product, the quantity of the product you produce, fixed costs, total cost, figure out total revenue, total and average variable costs. Then go ahead and make your decision. Explain carefully why it makes better sense to shut down rather than continue to operate or to continue to operate rather than shut down, as the case may be. How do fixed costs play a role in your analysis? What is the difference between shutting down and going out of business?

Say you are the manager of a perfectly competitive firm selling a product. Your business is making a loss because total revenue is less than total costs. What would you do--shut down or continue to operate? Use hypothetical numbers to explain. Information you need to provide include--state the product you are selling, the price of the product, the quantity of the product you produce, fixed costs, total cost, figure out total revenue, total and average variable costs. Then go ahead and make your decision. Explain carefully why it makes better sense to shut down rather than continue to operate or to continue to operate rather than shut down, as the case may be. How do fixed costs play a role in your analysis? What is the difference between shutting down and going out of business?
Say you are the manager of a perfectly competitive firm selling a product. Your business is making a loss because total revenue is less than total costs. What would you do--shut down or continue to operate? Use hypothetical numbers to explain. Information you need to provide include--state the product you are selling, the price of the product, the quantity of the product you produce, fixed costs, total cost, figure out total revenue, total and average variable costs. Then go ahead and make your decision. Explain carefully why it makes better sense to shut down rather than continue to operate or to continue to operate rather than shut down, as the case may be. How do fixed costs play a role in your analysis? What is the difference between shutting down and going out of business?