shut-down rule - firms may continue to produce even when losing money  

• firm could expect to earn a profit in the future
• shutting down might be costlier than operating in the red
• product price > average economic cost of production >> firm makes a profit by producing
  • assuming no sunk costs, firm should shut down when price of product falls below average total cost
  • w/ sunk costs, firm should only shut down when price of product falls below average variable cost

firm short-run supply curve - shows how much firm will produce for each price   

• supply curve
• part of marginal curve greater than average cost curve
• price changes >> firm changes output so that marginal cost equals price
• higher market price or higher prices for inputs may lead to upward shifts in marginal cost and

market short-run supply curve - sum of all firm supply curves in the market  

• overall prices changes can make adding firm supply curves more difficult
  • higher prices >> firms expand output >> demand of inputs increase >> prices of inputs could increase >> firms would then decrease output
  • market supply curve might not be as responsive
• E_s = (DQ/Q) / (DP/P)
• perfectly inelastic supply - greater output only possible by building new plants
• perfectly elastic supply - when marginal costs are constant
• producer surplus - difference between revenue and variable cost
  • surplus = R - VC = profit + FC