Short Run vs. Long Run
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Created by:
eileenbell on June 15, 2012
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5 terms
Terms | Definitions |
|---|---|
 Competitive Market Nature | - free entry/exit = infinite number of firms - Homogenous goods = no product differentiation - Seller is a $$ taker - Firm can choose optimal output given cost structure |
| Firm I's profit maximizing output decision | - TR = P x Q - AR = TR/q = P PRICE = AR = MR -----> demand curve is a horizontal line |
| Profit maximizing and supply curve | Profit = TR - TC MR = demand curve = AR = P MC = how much supply at any price and is RISING if MC > MR, output fall if MC < MR, output rise |
| SR Shut down decision | Shut down if TR < VC Shut down if TR/q < VC/q = P < AVC No variable costs if not producing |
| LR Shut down decision | Exit if TR < TC Exit if TR/q < TC/q = P < AC Enter if P > AC Total profit = (P-ATC) x Q LR, Price = Minimum of AC |
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