ECO 304K Lecture Notes - Lecture 11: 2-Step Garage, Average Variable Cost, Fixed Cost

• School: UT-Austin
• Department: Economics
• Course: ECO 304K
• Professor: Thomas Wiseman

Document Summary

To maximize profit, keep increasing production as long as mr > mr. For a competitive, mr=p, so mc=p at q* If p* < min atc, firm faces a 2-step decision. Lose , lose money either way, lose less if you produce reason is= market price, revenue you get if you produce is higher than you average variable cost . Produce in the short run if p*> min avc. In the long run, if p* < min atc, When p> min atc, firms make positive economic profits ( above normal profits ), so other firms enter the industry. So the industry supply curves increase ^, so market price decreased. An individual firm"s supply curve did not change , but now there are more firms. When p< min atc, firms make negative economic profits, so firms exit, so s goes down, and p goes up.