Theory of the Firm Flashcards
1
Q
What is profit maximization?
A
Firms choose P*,Q* to maximize profits
3
Q
Zero Economic Profit
A
TR = TC at P*,Q*
3
Q
P*,Q* = ?
A
Where MC = MR
4
Q
Negative Economic Profit
A
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5
Q
When do you shut down?
A
When you can’t cover your variable costs
6
Q
When MR = MC, Marginal profit = ?
A
0
7
Q
Negative Economic Profit and Shut Down
A
TR
8
Q
Economic Profit
A
TR > TC at P*,Q*
9
Q
A
