Micro26isa Essay Example | Topics and Well Written Essays - 1000 words

Micro26isa - Essay ExampleIn this respect, the libertines only have the option of functional with the prevailing price or lower. This constitutes what taking price is. There atomic number 18 various assumptions that compel the firms in this market to take prices. Sellers and buyers argon many and any action towards increasing prices will only exasperate sales through migration of buyers. Products are homogeneous and change of price will only divert buyers to touch on the same products from new(prenominal) firms selling at the prevailing or lower prices. These assumptions play a fundamental role in pushing firms to take the market prices or fail. Some of the industries with such assumptions include vesture and textile, Cosmetics, electrical and electronics industry among others. Some industries like medicine and drugs, energy among others cannot accommodate these assumptions hence exhibit other market structures. 2. Shut- cut out Point for a securely (20 points) When will the competitive firm shut down in the short run? When will it incur a loss but continue to produce? mess a graph showing each scenario and explain. It is important to note that shut down point is the train of output and price where the firm can just cover its total vari subject bell. Some of the make issues to consider in determining this point include relative position of the come variable cost which is always at its minimum for this condition. Where the peripheral cost write out crosses the average variable cost dilute also sums up to shut down of the firm. At this point, the producer is indifferent between producing and temporarily conclusion down. The firm incurs a loss from either action. In the event that market prices fall below the firms average variable cost, temporary shutdown is preferable in the short run. In incident the firm continues to produce, losses from its operation merely add to losses that results from the firms fixed be and shut down will lead to slump in losses. Figure 1 Shut down when P AVC ATC Price MC AVC P = MR Quantity A price taking firm that intends to bear on operational will minimize losses or maximize profit if it will be able to produce the output level at the point where P = MC and variable costs are also covered. In this case, the portion of the firms short run marginal cost curve which lies above its average variable cost becomes the short-run curve of the firm. Figure 2 retrieved on whitethorn 13, 2013 from http//www.analystnotes.com/notes/subject.php?id=119 Considering the grahp above, in case the price is below P1, the firm should shut down its operation. Long-Run Cost Curve, Economies of Scale, and Firm Size (15 points, 5 points each) A. Explain how economies of scale and the long-run cost curve influence firm size of it and firm concentration. The theoretical presentation starts with the short-run and shows the average cost curves (Total, fixed and variable) along with the marginal cost. The curves are pre sented in Figure 1 MC ATC cost in $ AVC AFC Quantity Figure 1. Short-run unit cost curves marginal cost (MC), average total cost (ATC), average variable cost (AVC) and average fixed cost (AFC). The short-run cost curves are normally based on a drudgery function with one variable factor of production that displays first increasing and then change magnitude marginal productivity. Increasing marginal productivity is associated with the negatively sloped portion of the marginal cost curve, while decreasing marginal productivity is associated with the positively sloped port