Short-Run Profit Maximization 8.3-2 Flashcards Preview

Econ 2106 Exam 2 > Short-Run Profit Maximization 8.3-2 > Flashcards

Flashcards in Short-Run Profit Maximization 8.3-2 Deck (13)
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1
Q

The rule for profit maximization

A

Produce where price is equal to marginal cost. Also, be sure that marginal cost is increasing.

2
Q

What happens when marginal cost is greater than price?

A

You can reduce marginal cost by reducing output and getting back in the direction of profit maximization.

3
Q

What happens after marginal cost exceeds price?

A

Profit begins to decline.

4
Q

What happens if you produce where price equal marginal cost and marginal cost is decreasing?

A

Profit is minimizing.

5
Q

Maximizing profit:

A

Just because a firm is maximizing its profit, doesn’t mean its profit is positive.

6
Q

How do you make sure that when a firm is maximizing a profit that it’s making a positive profit instead of a negative one?

A

You look at an Average Cost Curve.

7
Q

Average Cost Curve:

A

Looks at the whole picture to tell us the cost on average of producing a product.

8
Q

Maximizing profit continued:

A

As long as price is above per unit cost, firm is maximizing profit and making a positive profit. Vise Versa.

9
Q

Average Total Cost:

A

TC
—- X per unit cost of output
TP

10
Q

Comparing:

A

Compare price with ATC to see if profit is positive.

11
Q

What happens as long as MC is less than price?

A

The firm’s profitability increases as the firm’s production increases.

12
Q

If the price exceeds the ATC at the profit maximizing output:

A

The firm is profiting.

13
Q

If the ATC is greater than the price:

A

The firm has a negative profit or loss.