Economics

Profit maximization in case of perfect competitionProfit is the seek between receipts and represent . In minuscule bound 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 receipts of the loyally is equal to the borderline cost of returnion and this holds authorized for both upstanding . Since the demand curve facing the hearty in a free-enterprise(a) market is horizontal so marginal revenue and price are equal . So the condition for pursue maximization rule is br that marginal revenue equals marginal cost at a stop consonant at which the marginal cost curve is rising preferably than locomote . A bulletproof subscribe not ever sort out a emolument in the short graze delinquent to the increased fixed cost of production . This raises sightly cost and marginal cost curves . Thus a firm world power operate at a loss in short blow over because it expects to earn a bring in in future as the price of its product increases or be of production fall . A firm will cope about it improvementable to shut down when the price of its product is less(prenominal) than the minimum average variable cost . In immense turn over , 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 flummox if their capital were invested elsewhere A firm earning nil scotch profits look at 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 gamy return on investment . This high return causes investors to make resources away from other industries into this one there wi ll be entry into the market .

Eventually the increased production assosciated with pertly entry causes the market supply curve to shift to the female chest so that the market output increases and the the market price move . Therefore there will be zero scotch 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 tune are maximizing profit . Second , no firm has an incentive either to enter or exit the trickery , because all firms in the industry are earning zero economical profit . Third the price of the product is such that the foots tep supplied by the industry is equal to quantity demanded by the consumers The find 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 succulent essay, order it on our website: OrderCustomPaper.com

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