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TC TFC + TVC Atc Afc + Avc Atc TC / Q Afc TFC / Q Avc TVC / Q MC Change in TC Change in Q

Firms in competitive and monopolistically competitive markets are expected to break even in the long run, while firms in oligopoly and monopoly markets can earn positive profits. Costs include total fixed costs, total variable costs, average fixed costs, average variable costs, average total costs, and marginal costs. Firms will shut down temporarily if price is below average variable cost, and will produce the quantity where marginal revenue equals marginal cost if price is above average variable cost.

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MJ Botor
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81 views1 page

TC TFC + TVC Atc Afc + Avc Atc TC / Q Afc TFC / Q Avc TVC / Q MC Change in TC Change in Q

Firms in competitive and monopolistically competitive markets are expected to break even in the long run, while firms in oligopoly and monopoly markets can earn positive profits. Costs include total fixed costs, total variable costs, average fixed costs, average variable costs, average total costs, and marginal costs. Firms will shut down temporarily if price is below average variable cost, and will produce the quantity where marginal revenue equals marginal cost if price is above average variable cost.

Uploaded by

MJ Botor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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III.

Recap of Firm’s Profits


A. Costs
We would expect that firms in competitive and monopolistically competitive market would break even
in the long run.

We would expect that firms in oligopoly or monopoly market would earn positive profits in the long run.

TC = TFC + TVC
B. Revenue
cost per
TR = P x Q
ATC = AFC + AVC input
MR = change in TR
ATC = TC /Q
change in Q
Marginal
AFC = TFC / Q
Average Revenue = TR / Q
Cost
AVC = TVC / Q =PxQ / Q
Average Tot
MC = change in TC = P
change in Q
C. Shut Down and Break Even Average Variable Cos
If P < AVC, then temporarily shut down.

loss equal to fixed cost

If P > AVC, the produce the quantity where MR = MC.

If P < ATC, earn a loss. (exit in the long run)

If P = ATC, break even.


output
If P > ATC, earn a profit. (firms will enter if there are no
barriers)

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