- 64 Views
- Uploaded on

Download Presentation
## PowerPoint Slideshow about ' AP Economics' - ellard

**An Image/Link below is provided (as is) to download presentation**

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

AP EconomicsMr. Bernstein

Is this Perfectly Competitive firm making a profit?

AP EconomicsMr. Bernstein

Is this Perfectly Competitive firm making a profit?

- Profit Maximizing Output = 5
- Profit Per Unit = 8-6 = 2
- Total Profit = 5 * 2 = 10

AP EconomicsMr. Bernstein

Is this Perfectly Competitive firm making a profit?

- The Profit can be
viewed as a rectangle

with size Q * (P – AC)

MC

ATC

ATC

P

P=MR=d=AR

Q*

Output

AP EconomicsMr. BernsteinIs this Perfectly Competitive firm making a profit?

- NO!!
- ATC > P

MC

ATC

P=MR=d=AR

Output

Q*

AP EconomicsMr. BernsteinIs this Perfectly Competitive firm making a profit?

- P = ATC
- Economic Profit = 0
- AKA Normal Profit
- Breakeven Point
- Only occurs at the
minimum of the

ATC curve…

AP EconomicsMr. Bernstein

The Short-Run Production Decision

- Why continue to produce if P = MR = MC?
- Because loss from producing at P = MC may be less than loss of producing 0!
- The Shut-down Rule:
- Shut down if TR < TVC
- Shut down if P < AVC

$

ATC

P=ATC

P=MR=d=AR

Output

Q*

AP EconomicsMr. BernsteinThe Short-Run Production Decision

- Shut down when P < AVC (MC is supply curve)

AVC

Shut-down

Price

AP EconomicsMr. Bernstein

The Long Run Production Decision

- In the long run, firms unable to earn a profit would not only shut down short term, they would exit the industry
- Remember in Perfect Competition there are no barriers to entry or exit

Download Presentation

Connecting to Server..