Economics

Profit maximization in case of perfect competitionProfit is the struggle between receipts and cost . In short choke a family operates with a fixed amount of detonator and must choose the levels of its variable inputs (labour and materials Profit is maximized when the peripheral revenue of the loyally is equal to the marginal cost of production and this holds authorized for every upstanding . Since the demand curve facing the firm in a free-enterprise(a) market is horizontal so marginal revenue and price are equal . So the condition for wage maximization rule is br that marginal revenue equals marginal cost at a stop consonant at which the marginal cost curve is rising preferably than falling . A firm subscribe not ever earn a emolument in the short graze due to the increased fixed cost of production . This raises sightly cost and marginal cost curves . Thus a firm might operate at a loss in short blow over because it expects to earn a profit in future as the price of its product increases or be of production fall . A firm will come about it profitable to shut down when the price of its product is less(prenominal) than the minimum average variable cost . In colossal run , the firmearns cypher frugal profits . Economic profit takes account of opportunity costs One such opportunity cost is the return that the owners of the firm could make if their capital were invested elsewhere A firm earning zero scotch profits need 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 game 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 impertinently entry causes the market supply curve to shift to the flop so that the market output increases and the the market price falls . Therefore there will be zero economic profits . When a firm earns zero profit , it has no incentive to enter . A long run competitive eqilibrium occurs when three conditions hold . First , all firms in the pains are maximizing profit . Second , no firm has an incentive either to enter or exit the fabrication , because all firms in the industry are earning zero economic profit . Third the price of the product is such that the step supplied by the industry is equal to quantity demanded by the consumers The fancy 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 dissuade a manager whose reward depends on short run profit that the firm earns...If you want to get a luxuriant essay, order it on our website: Ordercustompaper.com

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