Because a lot more devices MC would-be higher predicated on law off shrinking output, MR would-be lower than MC; which is, the business create losses profit by promoting more gadgets. Hence, this is actually the profit enhancing productivity top.
In such a case, the firms economic losses translates to their overall fixed costs
The shutdown point is the level of output and price at which the firm just covers its total variable cost. If the MR of the product is less than the minimum average variable cost (min AVC), the firm will shut down because this action minimizes the firms loss. If MR < min AVC, then each additional unit produced would increase the loss. For pure competition, MR is equal to price as the firm is facing a perfectly elastic demand. Therefore, for short run, if Price < min AVC, then the firm should shut down. If Price > min AVC, then the firm should produce. Price and MC are compared to find the profit maximizing or loss minimizing output level. The supply curve of the pure competition firms would be the portion of the MC curve above the min AVC.
1. If EP < - FC or Market P < Min AVC, firm should shut down. Output = 0 , and EP = -FC
dos. In the event that EP > – FC or Sector P > Minute AVC, company is always to build. Company’s returns height are at the where MR=MC otherwise P=MC. Have fun with EP = TR – TC to acquire economic finances of one’s agency.
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