Choosing output in long run, Microeconomics

Choosing Output in Long Run

* In long run, a firm can change all its inputs, including size of the plant.

* We are taking free entry and free exit.

2171_output in long run.png

681_output in long run1.png

* Accounting Profit and Economic Profit

- Accounting profit (π) = R - wL

- Economic profit (π) = R - wL - rK

  • wL = labor cost
  • rk = opportunity cost of capital

* Long Run Competitive Equilibrium

- Zero-Profit

  • If R > wL + rk, the economic profits are positive
  • If R = wL + rk, zero economic profits, but firms is earning normal rate of return; showing that the industry is competitive
  • If R < wl + rk, consider going out of the business

- Entry and Exit

• The long run response to short run profits is to increase profits and output.

  • Profits will attract the other producers.
  • More producers increase the supply of industry that lowers market price.

       1084_output in long run2.png

Long Run Competitive Equilibrium

* Long Run Competitive Equilibrium

 1)  MC = MR 

 2) P = LAC

  • No incentive to enter or leave
  • Profit = 0

  3) Equilibrium Market Price

* Questions

 1) Explain market adjustment when P < LAC and firms are having identical costs.

 2) Explain market adjustment when firms are having different costs.

 3) What is opportunity cost of land? 

Posted Date: 10/12/2012 5:42:40 AM | Location : United States







Related Discussions:- Choosing output in long run, Assignment Help, Ask Question on Choosing output in long run, Get Answer, Expert's Help, Choosing output in long run Discussions

Write discussion on Choosing output in long run
Your posts are moderated
Related Questions
True public goods are those goods which can't be provided to one group of consumers, without being provided to any other consumers who desire them. Thus they are "non-excludable."

a) Describe and derive the equilibrium contract offered to high risk individuals.                                             b) Describe and derive the equilibrium contract offe

What are the parts of valuable economics paper? The consequence of economics research is an economic conclusion. Usually a valuable economics paper comprises three parts: a.

THEORY OF CUSTOMS UNION: A customs union is an association of two or more countries to encourage trade. The countries making such an arrangement agree to eliminate tariffs and

discuss the implications of various market structure for price determination

Plot the demand schedule and draw the demand curve for the data given for Marijuana

"If for a certain market, the concentration ratio CR4 (the combined market share of the 4 largest firms) is 1, its Herfindahl index is at least 0.25." Describe the given statement.

How are consequences of economists used? Economists generally use efficiency, information, equilibrium and incentive compatibility like focal points, and examine the consequenc

Globalization: A generalized historical process by which more economic activity occurs across national borders. Forms of globalization include international trade (imports and expo

Managerial Economies: These are many managerial economies associated with large-scale production. A large firm is in the position to employ more highly qualified and speciali