ECON528 – Module 4

Maximize the profit at given price P0

TR_MR

 

 

Profit_Graph

 

Max_Profit

 

TR-TCisProfit

 

Shutdown Condition: In short run, firm will shutdown if TR < VC at maximum profit output, which is q* where MC = MR.

 

Loss

 

Equilibrium = No tendency for change.

The short-run equilibrium is when the firm will not be motivated to change.   That would be when they are maximizing profits, ie:  when MC=MR, with the one exception of a shutdown condition (or when AVC > MR).   This is even true if they are losing money overall (MR<ATC).   Any other condition would not be a short run equilibrium because they would be motivated to get to MC=MR no matter what.