Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can explain the difference between shutting down (short run) and exiting (long run). (Guide: “Two different time periods, two different decisions”; Practice Q7(d))
- I can explain why fixed cost does not affect the short-run shutdown decision. (Guide: “The short-run decision: produce or shut down”; Practice Q7(a))
- I can explain why a firm may keep producing at an economic loss. (Guide: “Why producing at a loss can make sense”; Practice Q2, Q5(c))
- I can explain why firms enter a market with economic profit and exit one with expected economic losses, and why barriers matter. (Guide: “The long-run decision: enter or exit”; Practice Q3, Q6(d))
Calculation and graphing
- I can decide between producing and shutting down by comparing TR with TVC, or P with AVC. (Guide: Worked example 1; Practice Q1, Q4)
- I can calculate a firm’s result when it produces and when it shuts down (−TFC). (Guide: Worked examples 1 and 2; Practice Q2, Q6(b))
- I can find the shutdown price (minimum AVC) and the break-even price (minimum ATC) from a table. (Guide: Worked example 1(a); Practice Q4(b))
- I can draw MC, ATC and AVC with MC through both minimums, and show the price ranges for profit, loss and shutdown. (Guide: Figure 1; Practice Q5)
- I can shade the loss of a firm that is producing at a price between minimum AVC and minimum ATC. (Practice Q5(b))
Reasoning
- I can use economic profit, not accounting profit, to predict entry or exit. (Guide: Worked example 2; Practice Q3, Q6)
- I can explain how a change in fixed cost changes the break-even price but not the shutdown price. (Practice Q7(b))
- I can judge a firm’s short-run and long-run decisions from the same set of figures. (Guide: Worked example 2; Practice Q6)
All ticked? Move on to Topic 3.7, Perfect Competition, or return to the course roadmap.