CH.7 Perfect Competition Flashcards
1
Q
Profit Maximization
A
Profit= TR- TC
Profit= (P-ATC)Q
MR=MC maximum profit
Maximize profits the firm should produce the quantity where Marginal Revenue equals Marginal Cost
2
Q
When does the firm make profit, break even and make loss?
A
P > ATC Profit
P = ATC Break Even
P < ATC profit Loss
3
Q
Total Revenue Formula
A
TR= PxQ
4
Q
Marginal Revenue Formula
A
Change TR/ Change Q
5
Q
Profit Maximizing (Q*)
A
MR=MC
P=MC
6
Q
How do you choose to produce?
A
Choosing whether to produce is based on the relationship between TR and VC. (Fixed costs are sunk costs)
7
Q
(3) Choices to produce
A
- TR>VC or P>AVC then produce
- TR=VC or P=AVC then indifferent
- TR
8
Q
Where is the supply Curve?
A
The supply curve is the Marginal Cost Curve above the shut down point.
