AP Economics Homework
Shut Down Decision
P<AVC
p
MC
ATC
AVC
p
“Shut Down”?
Or
“Still There”?
•
•
MR=d
Firm
q
q
*p=MR=d=AR for the firm
*q where MR=MC
*shut down because fixed
costs (ATC-AVC=AFC) are
•
Read the Consider This “The Still There Motel” pg. 185
Find an example of “Still There,” a business that PATC
but PAVC and they can cover their AVC & stay open.
What fixed costs do they probably still pay or could
negotiate? What variable costs do they probably cut back
on?
Answer the review Q’s
Economies of Scale exist when:
A the doubling of all inputs doubles the output produced
B short-run average total cost decreases as output increases
C short-run average total cost remains constant as output increases
D long-run average total cost decreases as output increases
E long-run average total cost increases as output increases
Under which of the following circumstances is a firm experiencing economies of scale?
A the firm increases only its labor input, and output decreases
B the firm doubles it inputs, and output triples
C the firm builds a new plant, and the average cost of production increases
D the firm hires a new plant manager, and profits increase
E the product price increases, and the firm increases its output
An unprofitable motel will stay open in the short-run if:
a. price (average nightly room rate) exceeds average variable cost.
b. marginal revenue exceeds marginal cost.
c. price (average nightly room rate) exceeds average fixed cost.
d. marginal revenue exceeds price