ECON10004 Lecture Notes - Lecture 13: Opportunity Cost

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Going to keep producing until mr = mc. Need to cover opportunity cost (tr opp. Sr: operate if tr vc (p avc) Lr: operate if tr tc (p atc) To find the profit-maximising quantity to supply at each possible price: Mr is equal to the price in pc market. Mc curve intersects the avc and atc at their minimum point. Avc is always lower than atc as the difference is afc. When these curves are declining, the mc curve should be below them, when they are increasing, the mc curve should be above. P min atc min avc < p < min atc. Note: number of firms is fixed in the short run. Each firm chooses q* to maximise profits (mr = mc) The number of firms can vary in the long run (e. g. ) suppose firms earn positive economic profits in sr (higher returns) Earning positive economic profits because p1* > atc of supplying q1* units.

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