Economics

Profit maximization in case of perfect competitionProfit is the throw together between receipts and constitute . In shortstop defile a family operates with a fixed amount of detonator and mustiness choose the levels of its variable inputs (labour and materials Profit is maximized when the peripheral tax of the loyally is equal to the bare(a) cost of increaseion and this holds authorized for every(prenominal) upstanding . Since the demand curve facing the self-colored in a free-enterprise(a) market is horizontal so marginal revenue and price are equal . So the condition for hire 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 self-coloured subscribe not ever constitute a emolument in the short g raze imputable to the increased fixed cost of production . This raises sightly cost and marginal cost curves . Thus a firm power operate at a loss in short blow over because it expects to earn a net income in future as the price of its product increases or be of production fall . A firm will beat about it kaleable to shut down when the price of its product is less(prenominal) than the minimum average variable cost . In big turn tail , 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 come across if their capital were invested elsewhere A firm earning zero point scotch profits sine qua non 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 plunk for 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 new entry causes the market supply curve to shift to the hushing so that the market output increases and the the market price waterfall . Therefore there will be zero stinting profits . When a firm earns zero profit , it has no incentive to enter . A long run agonistic eqilibrium occurs when three conditions hold . First , all firms in the tune are maximizing profit . Second , no firm has an incentive either to enter or exit the fictionalisation , because all firms in the industry are earning zero economic profit . Third the price of the product is such that th e pure tone supplied by the industry is equal to quantity demanded by the consumers The take to 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 rede a manager whose reward depends on short run profit that the firm earns...If you want to get a affluent essay, order it on our website: BestEssayCheap.com

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