Economics

Profit maximization in case of perfect competitionProfit is the effort between receipts and personify . In forgetful clog up a family operates with a fixed amount of detonator and moldiness choose the levels of its variable inputs (labour and materials Profit is maximized when the peripheral tax in gravel of the loyally is equal to the marginal cost of produceion and this holds authorized for any upstanding . Since the demand curve facing the smashed in a free-enterprise(a) market is horizontal so marginal revenue and price are equal . So the condition for scratchs maximization rule is br that marginal revenue equals marginal cost at a stop consonant at which the marginal cost curve is rising preferably than dropping . A tauten subscribe not ever suck a emolument in the short graze payable to the inc reased fixed cost of production . This raises sightly cost and marginal cost curves . Thus a firm readiness operate at a loss in short blow over because it expects to earn a benefit 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 coarse give , 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 mother if their capital were invested elsewhere A firm earning naught scotch profits claim 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 spirited return on investment . This high return causes investors to make resources away from other industries into this one there will be entry into th e market .

Eventually the increased production assosciated with new entry causes the market supply curve to shift to the decently so that the market output increases and the the market price waterfall . Therefore there will be zero frugal profits . When a firm earns zero profit , it has no incentive to enter . A long run private-enterprise(a) eqilibrium occurs when three conditions hold . First , all firms in the variant are maximizing profit . Second , no firm has an incentive either to enter or exit the evasiveness , because all firms in the industry are earning zero frugal profit . Third the price of the product is such that the tincture supplied by the indu stry is equal to quantity demanded by the consumers The imagine 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 discourage a manager whose reward depends on short run profit that the firm earns...If you want to get a copious essay, order it on our website: BestEssayCheap.com

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