Enter/Exit a Market
If a firm is earning a loss in the long run.
When will a firm exit the market?
When MP is zero...
When is TP at maximum
Fixed cost/quantity
What is the average fixed cost formula?
Inputs that cannot be changed in the short run to change production.
What are fixed inputs?
When should a firm stay open?
If firms are earning positive economic profit.
When should a firm enter a market?
When is TP decreasing?
Variable cost/quantity
What is the formula for average variable cost?
A firm's max potential level of production.
What is plant capacity?
If Variable cost < Total revenue < Total cost
When should a firm stay open while operating at a loss?
Obstacles that prevent new competitors from entering a market.
When MP is positive but decreasing...
When is TP increasing at a decreasing rate?
Total cost/quantity
What is the formula for average total cost?
The total quantity of output produced by a certain amount of inputs.
What is total product?
If Total revenue < Variable cost < Total cost
When should a firm shut down temporarily?
In order to operate in the short-run, the firms TR must cover its variable costs.
What is the shut-down rule?
When MP is increasing...
When is TP increasing at an increasing rate?
Total revenue - (explicit + implicit costs)
What is the formula for economic profit?
Output is increasing at a slower rate than all inputs.
What is decreasing returns to scale?
If Total revenue < Total cost
When does a firm earn an economic loss?
If they are earning a loss or profit in the short-run.
What should firms consider when determining whether or not they should shut down?
When MP is above AP...
When is AP rising?
Total revenue- explicit costs
What is the formula for accounting profits?
Al inputs can be altered, no inputs are fixed, plant capacity can be altered and all costs are variable.
What is the long-run?
If Total revenue > Total cost
When does a firm earn an economic profit?