Long run output, Managerial Economics

Assignment Help:

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.


Related Discussions:- Long run output

Describe the status goods of law of demand, Describe the Status goods of la...

Describe the Status goods of law of demand The law doesn't concern the commodities that function as a 'status symbol', add to the social status or exhibit prosperity and opulen

Demand for money, Demand for money   The demand for money is a more d...

Demand for money   The demand for money is a more difficult concept than the demand for goods and services.  It refers to the desire to hold one's assets as money rather tha

What is the significance of managerial economics, Significance of manageria...

Significance of managerial economics Industrial and Business enterprises aim at earning maximum proceeds. In order to attain this objective, a managerial executive has to take

The acceleration principle, THE ACCELERATION PRINCIPLE Suppose that th...

THE ACCELERATION PRINCIPLE Suppose that there is a given ratio between the level of output Y t at any time t , and the capital stock required to produce it K t and that

Super-comfort pillow, In the country of Sleep-well, the inhabitants' main a...

In the country of Sleep-well, the inhabitants' main activity is... sleeping. Despite the loss of productivity that this entails, the country has a profuse and renowned production o

Demand forecasting methods, Prediction markets:   These are speculative mar...

Prediction markets:   These are speculative markets fashioned with the intention of making predictions. Assets which are produced possess an ultimate cash worth bound to a specific

What do you mean by theory of firm, Q. What do you mean by Theory of Firm? ...

Q. What do you mean by Theory of Firm? Microeconomics especially the theory of firm, assumed importance and attracted considerable attention in the early 20 th century. This sh

Uses of production function, The production function can have many uses. It...

The production function can have many uses. It can be used to compute least-cost factor combination for a given output or maximum output combination for a given cost. Knowledge of

Question, what is deadweight loss calculation?

what is deadweight loss calculation?

Show the characteristics of monopoly, Q. Show the Characteristics of monopo...

Q. Show the Characteristics of monopoly? Let's summarise the main characteristics of monopoly as under: Cross-elasticity of demand for a monopoly product is zero in the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd