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* * This slide is similar to Figure 1 in the chapter. I’ve omitted the AVC and ATC curves (which appear in Figure 1 in the chapter) because they are not needed at this point. * * The shutdown rule, in plain English, says: If the cost of shutting down is less than the benefit, the firm should shut down. * * In edit mode, it looks like the text boxes are on top of each other. But in presentation mode, the text boxes display only one at a time. * * The decision rule for whether to exit says: If the cost of exiting is greater than the benefit, the firm should exit. * * Similarly, a prospective entrant compares the benefits of entering the market (TR) with the costs (TC), and enters if the benefits exceed the costs. * Rather than tell students that profit equals (P – ATC) x Q, this exercise requires students to figure it out for themselves. If this exercise is too easy for your students, you can replace it with lecture slides that appear at the end of this file. * The height of the rectangle is P – ATC, profit per unit. The width of the rectangle is Q, the number of units. The area of the rectangle = height x width = (profit per unit) x (number of units) = total profit. * Students that didn’t figure out the answer to the previous exercise should be able to get this one. If this exercise is too easy for your students, you can replace it with lecture slides that appear at the end of this file. Note that the statement “assuming AVC $3” is needed to prevent shut-down, i.e. to insure that the firm produces Q=30 instead of Q=0. * The height of the rectangle is ATC – P, loss per unit. The width of the rectangle is Q, the number of units. The area of the rectangle = height x width = (loss per unit) x (number of units) = total loss. * * In the real world, there are many markets in which assumptions (1) and (2) do not hold. We make them here for simplicity. Later in the chapter, we will see how our results change if we dro
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