1. Costs and Output Decisions in the Long Run

8. Minimizing Losses A Firm Will Operate If Total Revenue Covers Total Variable Cost 1,200 $  Total profit/loss ( TR  TC ) 800 $ Operating profit/loss ( TR  TVC ) 2,000 $  Profit/loss ( TR  TC ) 2,000 1,600 3,600 $ $ + Fixed costs Variable costs Total costs 2,000 0 2,000 $ $ + Fixed costs Variable costs Total costs 2,400 $ Total Revenue ($3 x 800) 0 $ Total Revenue ( q = 0) CASE 2: OPERATE AT PRICE = $3 CASE 1: SHUT DOWN

13. Shutting Down to Minimize Loss A Firm Will Shut Down If Total Revenue Is Less Than Total Variable Cost 2,400 $  Total profit/loss ( TR  TC ) 400 $  Operating profit/loss ( TR  TVC ) 2,000 $  Profit/loss ( TR  TC ) 2,000 1,600 3,600 $ $ + Fixed costs Variable costs Total costs 2,000 0 2,000 $ $ + Fixed costs Variable costs Total costs 1,200 $ Total revenue ($1.50 x 800) 0 $ Total Revenue ( q = 0) CASE 2: OPERATE AT PRICE = $1.50 CASE 1: SHUT DOWN

22. Weekly Costs Showing Economies of Scale in Egg Production $.019 per egg Average cost 1,600,000 eggs Total output $30,904 19,230 Land and capital costs 2,431 Transport costs 4,115 Feed, other variable costs $ 5,128 Labor TOTAL WEEKLY COSTS CHICKEN LITTLE EGG FARMS INC. $.074 per egg Average cost 2,400 eggs Total output $177 17 Land and capital costs attributable to egg production 15 Transport costs 25 Feed, other variable costs $120 15 hours of labor (implicit value $8 per hour) TOTAL WEEKLY COSTS JONES FARM

39. An Increasing-Cost Industry: External Diseconomies Construction Activity and the Price of Lumber Products, 1991 - 1994 Sources: Federal Reserve Bank of Boston, New England Economic Indicators, July, 1994, p. 21; Statistical Abstract of the United States , 1994, Tables 754, 755. 2.1 + NA 10.0 + 111,000 1994 3.0 + 24.6 + 9.5 + 100,917 1993 3.0 + 14.7 + 15.9 + 92,167 1992 - - - 79,500 1991 PERCENTAGE CHANGE IN CONSUMER PRICES PERCENTAGE CHANGE IN THE PRICE OF LUMBER PRODUCTS PERCENTAGE INCREASE OVER THE PREVIOUS YEAR MONTHLY AVERAGE, NEW HOUSING PERMITS YEAR