1. Economists versus accountants1
Economists versus accountants
> Normal ROR
= Normal ROR
Economists include all opportunity costs when analyzing a firm, whereas accountants measure only explicit costs. Therefore, economic profit is smaller than accounting profit

3. Average total cost in the short and long runs6
Average total cost in the short and long runs
Average
Total
Cost
ATC in short
run with
small factory
ATC in short
run with
medium factory
ATC in short
run with
large factory
ATC in long run
Economies
of scale
Diseconomies
of scale
$12,000
1,200
10,000
Constant returns to scale
1,000
Quantity of Cars per Day
Because fixed costs are variable in the long run, the average-total-cost curve in the short run differs from the average-total-cost curve in the long run.

4. When to Operate or Shut Down
Image: Animated Figure 9.2
Lecture notes:
Green = go. Yellow = caution. Red = stop.
If the MR curve is above the minimum point on the ATC curve, the firm will make a profit (shown in green).
If the MR curve is below the minimum point on the ATC curve but above the minimum point on the AVC curve, the firm will operate at a loss (shown in yellow).
If the MR curve is below the minimum point on the AVC curve, the firm will temporarily shut down (shown in red).