Micro Economics Master Essay Example | Topics and Well Written Essays - 1500 words

Micro Economics Master - Essay ExampleShort term shut come out of a business concentrates on tender the opportunity make ups or variable bells.As long as the firm produces something, it will maximize its profits by producing on the marginal cost curve. The firm will obtain to shut down if it cannot cover its variable costs. As glacial costs ar anyway going to be incurred, they ar not opportunity costs in the short sour -- so they are not relevant to the decision to shut down. Even if the company shuts down, it must(prenominal) pay the fixed costs. But the variable costs are avoidable -- they are opportunity costs So the firm will shut down if it cannot meet the variable (short run opportunity) costs. But as long as it can pay the variable costs and still have something to apply toward the fixed costs, it is better off continuing to produce.When the firms average total cost curve lies above its marginal revenue curve at the profit maximizing take aim of output, the firm is experiencing losses and will have to consider whether to shut down its operations. The decisions taken by a firm in such situations is termed as short shut down decisions. Short run equilibrium of a firm can be derived based on the total revenue and total cost and marginal revenue and marginal cost. As firms are price-takers, each firm in an industry tries to maximize its profit by adjusting the output to a take aim where Marginal Cost (MC) =Marginal Revenue (MR). Profit is the difference between the total revenue obtained from sales and the total cost incurred by the firm. The long run is defined as a period long enough to make the cost of all inputs variable. This includes, in particular, capital, plant, equipment, and other investments that represent long-term commitments.In the long the decisions taken would be besides exit decisions. Exit decisions are decisions taken by a firm to leave the market. They are not called as Shut-down decisions. Shut-down is only in the short-r un. Long run equilibrium plays a crucial role in deciding the existence of the firm. In the long run there are enough time periods for the firm to cover its losses and earn normal profits. This is because in the long run, all inputs are variable and the firm can have the most profitable level of output i.e. the profit maximization level of output. If firms are perfectly competitive, industry is making short term surplus (profits), to a greater extent firms will enter the industry. In the long run this will increase the market supply of the product and reduces the market price as well as the profits until all firms in the industry make a normal profit (break even )In the long run equilibrium, the business will be in operation(p) at the minimum point on both long - run and short - run average cost curves obtaining full economy of scale. A Walrasian or competitive equilibrium consists of a vector of prices and an allocation such that given the prices, each trader by