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2 cards from this section. Quick, good the night before a test.
What are the two necessary conditions for a firm to sustain short-run production?
Think about what costs are covered when a firm decides to produce.
Why does a firm exit the market in the long run?
Consider what happens to profits over time when costs are not covered.
What condition must hold for a firm to produce in the short run?
False income situations can lead to negative profits.
True or False: In the long run, if the market price is less than average cost, a firm will exit the market.
Consider how long-term sustainability plays a role in firm decisions.
A firm faces a price of Rs 25 per unit but has an AVC of Rs 30. What should the firm do in the short run? Provide a rationale for your decision.
Think about minimizing losses in economic decision-making.
If the average cost drops to Rs 10 while the market price stands still at Rs 20, how should the firm react? Calculate potential profit.
Consider how price and cost interact directly to yield profit.
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