Economics 8

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  • Firm's Production Decisions
    • A firm will maximize profits at an output where MR = MC
    • A firm’s supply curve when price is above ATC is its marginal cost curve
    • The Firm’s Short-Run Decision to Shut Down
      • A shutdown short-run decision not to produce anything during a specific period of time
    • Exit is a long-run decision to leave the market
    • The area of the shaded box between price and average total cost represents the firm’s profit
    • Why the Long-Run Supply Curve Might Slope Upward
      • Firms may have different costs
        • New entrants may have higher costs and need a higher price to make entry profitable
        • This implies that efficient firms can earn abnormal profits in the long run
      • Some resources used in production may be available only in limited quantities
        • An increase in the demand for a limited factor of production will raise prices


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