ECN 2020 Lecture Notes - Lecture 9: Average Cost, Average Variable Cost, Diminishing Returns
Document Summary
The firm"s shut down point is at a price of. A firm earning positive profits in the short run always has an incentive to increase its scale of operation in the long run. It has an incentive to expand its scale of operation only if it expects to continue to earn profits. A firm suffering losses in the short run will continue to operate as long as total revenue at least covers fixed cost. Disagree: it should continue to operate as long as total revenue total revenue is greater than variable costs variable costs. Explain why it is possible that a firm with a production function that exhibits increasing returns to scale can run into diminishing returns at the same time. Increasing returns is a reduction in _______ costs in the ______, while diminishing returns is an increase in _______ costs in the _____ average; long run; marginal; short run.
