ECON 1000 Lecture Notes - Lecture 16: Perfect Competition, Marginal Revenue, Demand Curve

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ECON 1000 Full Course Notes
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ECON 1000 Full Course Notes
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If the firm makes an economic loss it must decide to exit the market or to stay in the market. If the firm decides to stay in the market, it must decide whether to produce something or to shut down temporarily. The decision will be the one that minimizes the firms loss. If your total revenue is less than your variable costs, then it would be wise to shut down. The firm"s loss equals total fixed cost plus total variable cost, minus total. Economic loss = tfc + tvc - tr. = tfc + (avc - p) x q. If the firm shuts down, q is 0 and the firm still has to pay its tfc. The firm incurs a loss equal to its fixed costs. A firm"s shutdown point is the price and quantity at which it is indifferent between producing and shutting down. This point is where avc is at its minimum.

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