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SHORT-RUN CONDITIONS
AND LONG-RUN DIRECTIONS
MINIMIZING LOSSES
operating profit (or loss) or net operating
revenue Total revenue minus total variable cost
(TR TVC).
SHORT-RUN CONDITIONS
AND LONG-RUN DIRECTIONS
SHORT-RUN CONDITIONS
AND LONG-RUN DIRECTIONS
Any time that price (average revenue) is below the minimum point
on the average variable cost curve, total revenue will be less than
total variable cost, and operating profit will be negativethat is,
there will be a loss on operation.
In other words, when price is below all points on the average
variable cost curve, the firm will suffer operating losses at any
possible output level the firm could choose.
When this is the case, the firm will stop producing and bear losses
equal to fixed costs.
This is why the bottom of the average variable cost curve is called
the shut-down point.
At all prices above it, the marginal cost curve shows the profitmaximizing level of output.
At all prices below it, optimal short-run output is zero.
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SHORT-RUN CONDITIONS
AND LONG-RUN DIRECTIONS
shut-down
The
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SHORT-RUN CONDITIONS
AND LONG-RUN DIRECTIONS: A REVIEW
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Constant returns to scale mean that the firms longrun average cost curve remains flat.
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LONG-RUN ADJUSTMENTS
TO SHORT-RUN CONDITIONS
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LONG-RUN ADJUSTMENTS
TO SHORT-RUN CONDITIONS
LONG-RUN ADJUSTMENTS
TO SHORT-RUN CONDITIONS
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LONG-RUN ADJUSTMENTS
TO SHORT-RUN CONDITIONS
LONG-RUN ADJUSTMENTS
TO SHORT-RUN CONDITIONS
long-run
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