Authors libby rittenberg 487
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equals marginal revenue. These curves (labeled MC and MR2) intersect in
Panel (b) at an output of 4,444 pounds of radishes per month.
Figure 9.8 Suffering Economic Losses in the Short Run
Tony Gortari experiences a loss when price drops below ATC, as it does
in Panel (b) as a result of a reduction in demand. If price is above AVC,
however, he can minimize his losses by producing
where MC equals MR2. Here, that occurs at an output of 4,444 pounds
of radishes per month. The price is $0.18 per pound, and average total
cost is $0.23 per pound. He loses $0.05 per pound, or $222.20 per
month.
When producing 4,444 pounds of radishes per month, Mr. Gortari faces an
average total cost of $0.23 per pound. At a price of $0.18 per pound, he
loses a nickel on each pound produced. Total economic losses at an output
of 4,444 pounds per month are thus $222.20 per month (=4,444×$0.05).
No producer likes a loss (that is, negative economic profit), but the loss
solution shown in Figure 9.8 "Suffering Economic Losses in the Short
Run" is the best Mr. Gortari can attain. Any level of production other than
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
487
