The Marginal-Cost Curve and the Firm's Supply decision Costs This section of the and firm's Mc curve is Revenue also the firm's MC supply curve. aTC AVC 0 Q1 Q2 Quantity
0 Quantity Costs and Revenue MC ATC AVC Q1 P1 P2 Q2 This section of the firm’s MC curve is also the firm’s supply curve. The Marginal-Cost Curve and the Firm’s Supply Decision
The Firm's short-Run decision to shut down a shutdown refers to a short -run decision not to produce anything during a specific period of time because of current market conditions Exit refers to a long-run decision to leave the market The firm considers its sunk costs when deciding to exit, but ignores them when deciding whether to shut down Sunk costs are costs that have already been committed and cannot be recovered
The Firm’s Short-Run Decision to Shut Down • A shutdown refers to a short-run decision not to produce anything during a specific period of time because of current market conditions. • Exit refers to a long-run decision to leave the market. • The firm considers its sunk costs when deciding to exit, but ignores them when deciding whether to shut down. • Sunk costs are costs that have already been committed and cannot be recovered
The Firm's short-Run decision to shut down The firm shuts down if the revenue it gets from producing is less than the variable cost of production ● Shut down if tr<VC Shut down if TR/Q<VC/Q ● Shut down if p<AVC o The portion of the marginal-cost curve that lies above average variable cost is the competitive firms short-run supply curve
The Firm’s Short-Run Decision to Shut Down • The firm shuts down if the revenue it gets from producing is less than the variable cost of production. • Shut down if TR < VC • Shut down if TR/Q < VC/Q • Shut down if P < AVC • The portion of the marginal-cost curve that lies above average variable cost is the competitive firm’s short-run supply curve
The Firm's short-Run decision to shut down Costs Firm's short-run supply curve MC IfP> ato keep producing at a profit. aTC IfP> AVc keep producing AVC in the short run 0。00。。0。00。。0 IfP<AVCI shut down 0 Quantity
Quantity ATC AVC 0 Costs MC If P < AVC, shut down. If P > AVC, keep producing in the short run. If P > ATC, keep producing at a profit. Firm’s short-run supply curve. The Firm’s Short-Run Decision to Shut Down