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
reasons for and against free trade with foreign sector

Explain the term Laissez-Faire The term "laissez-faire" is used to explain an economic system where the government intervene as little as possible and leave the private sector

Why do so many international markets tend towards oligopolist structure? Definition of oligopoly - few and large firms with market power Basic assumptions of oligopoly

DISCUSS THE HICKSIAN & SLUTSKIAN APPROACH TO CONSUMER BEHAVIOR WHERE THERE IS CHANGE IN PRICE OF ONE GOOD GIVEN TWO GOODS

What is corporate governance? Why is it important for board of directors to ensure good corporate governance within a company? Students need to define corporate governance concisel


The Objective Probability -  100 explorations out of which 25 successes and 75 failures -  Probability (Pr) of success = 1/4 and probability of failure = ¾ Given: -

Assume there is a remote area in china with high population.The area is composed exclusively of apartments and is populated by low-income residents .The people tend to stay in that

Analyse the possible effects of speculation on exchange rates. Definition of speculation in currencies as betting on the appreciation/depreciation of a given currency. E

Policy Implications: The expansion of the services sector  has wider implications for population, employment, and trade prospects of the economy, some of which are as follows: