Long run output, Managerial Economics

LONG RUN OUTPUT

In the LR whether or not the firm makes profit will depend on the conditions of entry.  For example, when surplus profits exist, there will be new entrants because they will make profit.

But as new firms enter, the market share enjoyed by each firm dwindles and their curves will shift to the Left.  The costs will also be affected by the new entrants in three ways:

1.          The new firms might make the cost resources to go up.

2.          The cost curves might also be unaffected.

3.          As new firms enter the cost curves might shift downwards because many sellers might force costs of resources downward.

But in the LR increasing costs are mostly likely.  If there are increasing costs then existing profits will be squeezed.  Because of the reduction in an individual firm's product, there will be a reduction in profits.

As long as there area profits in the industry, more firm's entry will stabilize when profits are ZERO. The losses might also cause exit of the firm's.  The incentive to withdraw ceases when losses have been eliminated.  Therefore the LR output and price of the firm looks like this:

2185_long run output.png

Zero profits imply that LRAC = LRAR. Therefore LRAC is tangent to AR at Q1.  But Q2 is the LR optimum output for the firm but with a negatively sloped AR curve.  Zero profits imply that each firm will utilize a scale of plant smaller than optimum.  Hence free entry leads to EXCESS capacity for each plant.

Posted Date: 11/28/2012 5:38:33 AM | Location : United States







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

Write discussion on Long run output
Your posts are moderated
Related Questions
a)  The most well-organized combination of resources which can be used to make a given level of output is that which:   b)  The enactment of a guaranteed yearly income for al

define scarcity and opportunity cost.Show how these concept are useful in managerial decision making

Q. Describe the Public Utility Monopoly? Public Utility Monopoly:   Governmental authorities seize complete management and control of some utilities to protect social interest

The Barcelona Football Club is considering the signing of a player of international fame. The problem is that the player has a reputation for having a weak knee. The probability th

Northern Lumber operates a large lumber-processing mill in a small town in Washington State.  It is one of the larger lumber producers in the region and has some market power in th

What is Managerial economics according to Spencer and Siegelman Spencer and Siegelman:  Managerial economics is "the integration of economic theory with business practice for t

the demand for widgets(x) is given by: px=160 -4x the production of widget has the following average variable cost: Avc=2x-20 fixed cost are 162 calculate the output level of widg

In the long run, because of the assumption of free entry and exit of the firms, it's not possible for the firms to make super-normal profits nor it is possible for them to incur lo

Illustrate the concept of present value. The Concept of Present Value: While someone borrows money for a year, there the interest rate is the price, computed as a percent

Theory of consumer behaviour The role of customers in an economy is of significant importance because consumers spend most of their incomes on services and goods produced by fi