ECO100Y5 Lecture Notes - Lecture 9: Profit Maximization, Marginal Revenue, Marginal Cost
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= [(price x quantity) (actual cost x quantity)] = [quantity (price x actual cost): when mc = mr, there are two things we can do, either shut down or continue working. Fc tc tr: breakeven is where you make 0 profit, ex: price is per unit, atc is per unit and av is per unit. In the short-run, you should shut down if p < min(avc) If you produce, you get per unit. This would mean that economic profit would fall. If p > min atc, existing firms earn positive economic profit. Over time, market supply shifts to the right which means the price falls. If p < minatc, supply decreases, price goes up and is pushed towards the atc: the long-run market supply curve (lrs) is perfectly elastic at the zero-profit price/p=min cost. It is also known as the demand curve: marginal cost is the supply curve only if firms are competitive.
