microeconomics The Cost of Production参考.ppt

CHOOSING OUTPUT IN THE SHORT RUN 8.4 The Short-Run Profit of a Competitive Firm A Competitive Firm Making a Positive Profit Figure 8.3 In the short run, the competitive firm maximizes its profit by choosing an output q* at which its marginal cost MC is equal to the price P (or marginal revenue MR) of its product. The profit of the firm is measured by the rectangle ABCD. Any change in output, whether lower at q1 or higher at q2, will lead to lower profit. CHOOSING OUTPUT IN THE SHORT RUN 8.4 The Short-Run Profit of a Competitive Firm A Competitive Firm Incurring Losses Figure 8.4 A competitive firm should shut down if price is below AVC. The firm may produce in the short run if price is greater than average variable cost. Shut-Down Rule: The firm should shut down if the price of the product is less than the average variable cost of production at the profit-maximizing output. CHOOSING OUTPUT IN THE SHORT RUN 8.4 How should the manager determine the plant’s profit maximizing output? Recall that the smelting plant’s short-run marginal cost of production depends on whether it is running two or three shifts per day. The Short-Run Output of an Aluminum Smelting Plant Figure 8.5 In the short run, the plant should produce 600 tons per day if price is above $1140 per ton but less than $1300 per ton. If price is greater than $1300 per ton, it should run an overtime shift and produce 900 tons per day. If price drops below $1140 per ton, the firm should stop producing, but it should probably stay in business because the price may rise in the future. CHOOSING OUTPUT IN THE SHORT RUN 8.4 The application of the rule that marginal revenue should equal marginal cost depends on a manager’s ability to estimate marginal cost. To obtain useful measures of cost, managers should keep three guidelines in mind. First, except under limited circumstances, average variable cost should not be used as a substitute for marginal cost. Second, a single item on a firm’s accounting ledger ma