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
Question 1: "Anyone who is willing to learn the language of economics and take the time to practice making decisions can learn to be an effective manager." Explain how. Qu

No demand forecasting method is 100% accurate. Collective forecasts develop precision and reduce the probability of huge mistakes.  Methods which relay on Qualitative Assessmen

The production function of the personal computers for DISK Company is given by Q = 10 KL where Q is the number of computers produced per day, K s the hours of machine time,

Hayek explaination Under a fractional reserves system, it is possible for the banking system to supply resources to entrepreneurs for investment in excess of resources that are

Define the shift in demand curve To put it differently, demand for a commodity means entire demand schedule that demonstrates the varying amounts of goods purchased at alternat

a) A reduce in supply and an enhance in demand will cause the equilibrium:   b)  Which of the following is most likely to cause a reduce in the present demand for  some product X

analyze the method by which firm can allocate the given advertising budget between different media of advertisement

A  monopolist has two types of customers. There are 100 of Type A, who will every pay up to $10 for a single unit of the good, and 50 of Type B, who will every pay up to $8. Neithe

Decrease in Demand At the initial equilibrium price P 1 , quantity demanded falls from q 1 to q d .  But the quantity supplied is still q 1 at this price.  Hence, this

Plot the demand schedule and draw the demand curve for the data given for Marijuana in the case.