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If the MR = MC , then the firm is always to avoid producing the excess unit
Once the a lot more equipment MC could be large considering laws out-of diminishing productivity, MR would be below MC; that is, the business perform losses gain promoting a lot more tools. Therefore, here is the profit improving yields peak.
The shutdown point is the level of output and price at which the firm just covers its total variable cost. If the MR of the product is less than the minimum average variable cost (min AVC), the firm will shut down because this action minimizes the firms loss. In this case, the firms economic loss equals its total fixed costs. If MR < min AVC, then each additional unit produced would increase the loss. For pure competition, MR is equal to price as the firm is facing a perfectly elastic demand. Therefore, for short run, if Price < min AVC, then the firm should shut down. If Price > min AVC, then the firm should produce. Price and MC are compared to find the profit maximizing or loss minimizing output level. The supply curve of the pure competition firms would be the portion of the MC curve above the min AVC.
1. If EP < - FC or Market P < Min AVC, firm should shut down. Output = 0 , and EP = -FC
dos. Company’s productivity level is within where MR=MC otherwise P=MC. Have fun with EP = TR – TC to obtain monetary funds of your own enterprise.
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