ECON 201 Lecture 17: ECON 201 – Lecture 17 – Chapters 13 & 14
ECON 201 – Lecture 17 – Chapters 13 and 21
*All charts and graphs based off or replicated by Joel Han in class unless stated otherwise
Price falls
oAssume firm keeps producing… what would be the max profit (Could be
negative)?
Optimal Quantity is 30
Profit = (P-ATC)XQ
Profit = (3-5)X30
Profit = -$60
oShould firm shut down?
Not enough information to tell
Shut down/exit
oShut down – short-run decision not to produce anything
In Short Run, Fixed costs are sunk, paid by firm
oExit – Long-run decision to leave the market
In long run, no Fixed costs
When to Shut Down
oShort run:
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FC > 0
TR = 0
TC = FC
Profit = -FC
oShut down condition represented by: P < AVC (or TR<VC)
oIf TR < VC, shut down
oHow to find ATC or AFC
ATC = AVC + AFC ….. AFC = ATC – AVC
oBy shutting down the firm in the example above, firm uses FC = AFC X Q which
equals a $90 loss
oBy producing, firm loses a smaller amount of $60
oRepresented by graph
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Document Summary
Econ 201 lecture 17 chapters 13 and 21. *all charts and graphs based off or replicated by joel han in class unless stated otherwise. Shut down/exit: shut down short-run decision not to produce anything. In short run, fixed costs are sunk, paid by firm: exit long-run decision to leave the market. When to shut down: short run: Profit = -fc: shut down condition represented by: p < avc (or tr
