30 Oct 2015
School
Department
Course
Professor
ECON 208- Lecture 16- Chapter 9 cntd.
There are three possibilities:
Case 1: Zero Economic Profits
Alternative Short Run Profits of a Competitive Firm
The typical firm is just covering its costs, p= ATC
Case 2: Positive Economic Profits
Alternative Short Run Profits of a Competitive Firm
The Typical firm maximizes its profits at q*
Since p> ATC, the firm makes a economic profit equal to the blue area.
Positive profits means that this firm is earning more that it could in its next best
alternative venture
Case 3: Negative Economic Profits (Losses)
Alternative Short Run Profits of a Competitive Firm
The Typical firm maximizes its profits at q*
But if p< ATC, the firm suffers losses equal to the red shaded area.