9.3 Short-Run Decisions

Question 1

Should the Firm Produce at All?

Answer 1

A firm should not produce at all if, for all levels of output, total revenue is less than total variable cost
the firm should not produce at all if, for
all levels of output, the market price is less than average variable cost.

Question 2

What is the shut-down price?

Answer 2

The shut-down price is the price that is equal to the minimum of a firm’s average variable costs

Question 3

How Much Should the Firm Produce?

Answer 3

If it is worthwhile for the firm to produce at all, the profit-maximizing firm should produce the output at which marginal revenue equals marginal cost
MR=MC
p=MC

Question 4

What is the industry supply curve in perfect competition?

Answer 4

In perfect competition, the industry supply curve is the horizontal sum of the marginal cost curves (above the level of average variable cost) of all the firms in the industry

Question 5

What happens to an industry in short-run equilibrium?

Answer 5

When an industry is in short-run equilibrium, quantity demanded equals quantity supplied, and each firm is maximizing its profits given the market price. When the industry is in short-run equilibrium, a competitive firm may be making losses, breaking even, or making profits.