Question
At the breakeven point, what condition must price satisfy, and why is economic profit zero there?
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Answer
P=ATCmin; total revenue covers all explicit and implicit costs.
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Question
What profit-maximizing rule applies to every market structure?
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Answer
Produce where MR=MC.
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Question
Why should a firm shut down in the short run when price falls below minimum average variable cost?
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Answer
It cannot cover variable costs, so producing increases losses.
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Question
Why do economies of scale cause long-run average total cost to fall as output rises?
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Answer
Specialization, bulk buying, and spreading fixed costs lower unit cost.
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