-MR=MC: the place on the graph where profit maximization takes place
-The optimal output rule of a price-taking firm: price equals marginal cost at the price-taking firm's optimal quantity of output
-The break-even price: the minimum ATC of a price-taking firm and the price at which it earns zero economic profit (normal profit)
-P=MR=D (price=marginal revenue=demand)
-The optimal output rule of a price-taking firm: price equals marginal cost at the price-taking firm's optimal quantity of output
-The break-even price: the minimum ATC of a price-taking firm and the price at which it earns zero economic profit (normal profit)
-P=MR=D (price=marginal revenue=demand)
Short and Long Run Profit
A firm's decision of how much to produce and whether or not to stay in business is based on the economic profit (the opportunity cost of resources used by the firm)
In the short run, the market price is determined by the demand and supply curves. Firms are unable to enter or exit the market because costs are varied. Firms in the short run can earn an economic profit or a undergo a loss. The shut down price is when the market price is below the minimum average variable cost.
In the long run, firms are able to enter and exit the market there are varied and fixed costs. New firms enter the market in response to economic profits, and old firms exit the market in response to economic losses.
In the short run, the market price is determined by the demand and supply curves. Firms are unable to enter or exit the market because costs are varied. Firms in the short run can earn an economic profit or a undergo a loss. The shut down price is when the market price is below the minimum average variable cost.
In the long run, firms are able to enter and exit the market there are varied and fixed costs. New firms enter the market in response to economic profits, and old firms exit the market in response to economic losses.