1. Dealing with Losses Shutdown rule MR=MC, Q*; in the short run:
In the short run, the firm should continue to produce if total revenue exceeds total variable costs; otherwise, it should shut down
MR=MC, Q*; in the short run:
If TR>TVC - keep producing
If TR < TVC - shut down
If TR = TVC - indifferent between shutting down and producing

2. Dealing with Losses Figure 4 Loss Minimization (a) TC Dollars
Output
Loss at Q*
TR>TVC
Loss <TFC
TVC
TFC Q* TR
TFC

3. Dealing with Losses Figure 4 Loss Minimization (b) Dollars Output MCQ* MR

4. Dealing with Losses Figure 5 Shut Down TC Dollars
Output
Loss at Q* , TVC>TR
Shut down, produce nothing,
Loss=TFC in the short run
TVC
TFC Q* TR
TFC

5. The Long Run: The Exit Decision
A permanent cessation of production when a firm leaves an industry
A firm should exit the industry in the long run when - at its best possible output level - it has any loss at all

6. Getting It Right The Success of Continental Airlines
Mid 1960s - Other airlines
Offered a flight if 65% of seats sold
Used average cost to make decisions
Continental Airlines
Flying jets filled to just 50% capacity
Expanded flights on many routes
Increase profits
Used marginal cost approach to make decisions