Micro 3.6 The shut down rule!

[@Mouath99]

Hello, what did u mean at the last part when you said short run profits and short run losses?

[@ReviewEcon]

When a company sells its product in a perfectly competitive market, they break even (normal profit/zero economic profit) in the long run due to low barriers to entry. So any profit or loss is only in the short run. I hope that helps!

[@elijahwilliams1960]

Goat 🐐

[@ReviewEcon]

Thank you! Good luck with your studies!🤘😎

[@sweet.commentary]

Hello! I am confused about the graphs that you mentioned. Like I don't know what I should look at when comparing the between the variable & fixed costs of the short run cost curve. Could you explain how to read the boxes? Like at 3:02, why the ends at ATC and AVC? Also...I have an exam coming up soon! I don't know what to expect in terms of Multiple Choice for AP Micro Unit 3 because all the practice I have been doing involves graphs and drawing them. Do you know what types of MCQs are asked from Unit 3 in general? Like what could be asked of 3.6 & 3.7 really?

[@ReviewEcon]

The average fixed costs (for any specific quantity) is the vertical gap between the average variable cost and average total cost (at that specific quantity). If you bring that gap to the y-axis, it creates a rectangle, the area of which, is the total fixed costs for the firm. I hope that helps! You can learn more about the short run cost curves in the topic 3.2 video found here: kzbin.info/www/bejne/fpbVmH5vftOSgNU I also have a short MC practice game for unit 3 here. The total review booklet also has additional unit 3 multiple choice practice. www.reviewecon.com/games-activities/15-question-perfect-comp Good luck!

[@BS_Bubble]

Hello Mr. Reed. I thought the formula for finding Loss was TR-(VC+FC). In 5:05, why is loss shown as VC+FC -TR?

[@ReviewEcon]

They're essentially the same formula. Yours is for profit, mine is for loss. A negative loss will be a profit and a negative profit will be a loss. I hope that helps!

[@zenon1177]

Mr Reed should I always assume that all fixed costs are paid while operating? Or is there any exceptions?

[@ReviewEcon]

For the purposes of the AP exam, fixed costs are paid when zero units are produced, or thousands of units are produced. So, they are paid when operating or shutting down. I hope that helps!

[@zenon1177]

@@ReviewEcon it does thank so much 🙏

[@hAILeyson]

Hi! I'm a little confused about how you phrased the loss of a firm. You said "economic loss", but I thought this isn't an economic profit but an accounting profit (since you didn't minus the implicit costs when calculating the loss). Are these two different ideas? Thank you!

[@ReviewEcon]

All the cost curves (variable, fixed, and total) include both implicit and explicit costs. So if ATC is less than average revenue, the firm is earning economic profit. When we see profit on the graph, it is economic profit. I hope that helps!

[@MartinWu-sk6jd]

goat

[@ReviewEcon]

Thank you! Good luck with your studies!