Los 12.a Flashcards
(27 cards)
What is the definition of the short run for a firm in economics?
The time period over which some factors of production are fixed.
What factor is typically assumed to be fixed in the short run?
Capital.
What happens to all factors of production in the long run?
All factors of production are variable.
What is the breakeven output quantity?
When total sales cover both fixed and variable costs, resulting in zero economic profit.
In the short run, when should a firm continue to operate?
As long as items are being sold for more than their variable cost.
What should a firm do if items are sold for less than their average variable cost?
Shut down the business in the short run.
What is the long-run shutdown condition for a firm?
If the price is less than average total cost.
What is the relationship between price, average revenue, and average total cost at price P1?
Price and average revenue equal average total cost.
What does a price above P1 indicate for a firm?
The firm is making a positive economic profit.
What does a price less than P1 indicate for a firm?
The firm has economic losses.
What should a firm do if average revenue is less than average variable cost?
Shut down production in the short run.
What is the short-run shutdown point for a firm?
When average revenue is less than average variable cost.
What happens if average revenue is just equal to average total cost?
Total revenue is just equal to total economic cost, indicating the breakeven point.
What should a firm do if AR ≥ ATC?
Stay in the market in both the short and long run.
What should a firm do if AR ≥ AVC but AR < ATC?
Stay in the market in the short run but exit in the long run.
What should a firm do if AR < AVC?
Shut down in the short run and exit in the long run.
What is different for price-searcher firms compared to price-taker firms?
Marginal revenue is no longer equal to price.
What is the breakeven condition for a firm?
Total revenue equals total cost (TR = TC).
What should a firm do if total cost is greater than total revenue but greater than total variable costs?
Continue to operate in the short run but shut down in the long run.
What should a firm do if total revenue is less than total variable costs?
Shut down in both the short run and the long run.
What is the shape of the long-run average total cost curve?
U-shaped.
What does the downward-sloping segment of the LRATC curve indicate?
Economies of scale are present.
What factors contribute to economies of scale?
- Labor specialization
- Mass production
- Investment in more efficient equipment and technology.
What does the upward-sloping segment of the LRATC curve indicate?
Diseconomies of scale are present.
