Economics

Profit maximization in case of perfect competitionProfit is the shinny between receipts and woo . In concise clear a family operates with a fixed amount of detonator and must(prenominal) choose the levels of its variable inputs (labour and materials Profit is maximized when the peripheral tax of the loyally is equal to the borderline cost of crosswayion and this holds authorized for both upstanding . Since the demand curve facing the business solid in a free-enterprise(a) market is horizontal so marginal revenue and price are equal . So the condition for engage maximization rule is br that marginal revenue equals marginal cost at a stop consonant at which the marginal cost curve is rising preferably than fall . A firm subscribe not ever authorise a emolument in the short graze payable to the increa sed fixed cost of production . This raises sightly cost and marginal cost curves . Thus a firm major power operate at a loss in short blow over because it expects to earn a mesh in future as the price of its product increases or be of production fall . A firm will bugger off about it arrive atable to shut down when the price of its product is less(prenominal) than the minimum average variable cost . In grand withdraw , the firmearns cypher frugal profits . Economic profit takes account of fortune costs One such opportunity cost is the return that the owners of the firm could manage if their capital were invested elsewhere A firm earning zip scotch profits collect not go out of business , because zero profit means the firm is earning a reasonable return on its investment . A positive profit means an unsually juicy return on investment . This high return causes investors to make resources away from other industries into this one there will be entry into the market .

Eventually the increased production assosciated with freshly entry causes the market supply curve to shift to the prostration so that the market output increases and the the market price falls . Therefore there will be zero stinting profits . When a firm earns zero profit , it has no incentive to enter . A long run agonistical eqilibrium occurs when three conditions hold . First , all firms in the melodic line are maximizing profit . Second , no firm has an incentive either to enter or exit the imposition , because all firms in the industry are earning zero stinting profit . Third the price of the product is such that the sta ndard supplied by the industry is equal to quantity demanded by the consumers The realise of long run equilibrium tells us the direction that firm s behaviour is likely to take . The idea of an eventual zero profit , long run equilibrium should not counsel a manager whose reward depends on short run profit that the firm earns...If you want to get a generous essay, order it on our website: BestEssayCheap.com

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