Relationship between Short Run Cost and Equilibrium in Perfect Competition and Monopoly

Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Analysing the relationship between the short run cost through using table and diagram............1
Evaluating difference between short run equilibrium situation of perfectly competitive firm
and monopolist firm.....................................................................................................................5
Defining the inflation ..................................................................................................................6
Analysing the cost of inflation ....................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics concerned with the social science that deals with production, distribution and
consumption of goods and services. It is important form of study that an individual, businesses,
government and facilitates in making choices about how it allocate the resources effectively
(Anderegg and et.al, 2018).
In the UK, the economy is highly developed social market and also market oriented
economy and it is fifth largest national economy in the world. In this essay it is discussed about
the relationship of short run costs and critically examine through table and diagram. It is studied
the difference exist between short run equilibrium situation of perfectly competitive firm in
Monopolist firm. Apart from that it is define the inflation and mentioning the least three sources
and critically evaluate the cost of inflation of the economy is being discussed.
MAIN BODY
Analysing the relationship between the short run cost through using table and diagram
Short run cost contains both fixed and variable cost and in long run there is no fixed cost
and in short run cost price has short term inferences in the manufacturing procedure (Andor and
Fels, 2018). In this concept the short run the quantity of at least one input is fixed and quantities
of other input might be varied. In this period land and machinery remain the same and in this
expansion is done by hiring more labour and increasing capital. In the context of UK company,
the short run means that an output that increases by adding more variable factors that include the
employing the more worker and that increases the buying in more raw materials. There are
certain types of short run cost which is discussed below-
Total Fixed cost- This types of cost that used to remain constant in short period of period
and it does not change with the changes in the level of output. It is sum of shot run explicit fixed
cost and implicit cost that is incurred by entrepreneur. It will show the amount even when there
is no production in the company as they will occurred even when there is none activity in the
output. These cost are also known as supplementary cost, indirect cost, overhead cost, historical
cost. Therefore their slope of TFC Curve is horizontal straight line. This curve is horizontal to x-
axis and it can be seen that TFC remains the constant at all levels with the change in output.

Total variable cost- This cost changes with the changes in the level of production and
cost is directly proportional to the output of the given firm. TVC is also increasing when output
decreases and then TVC is decrease as well (Banzhaf, Ma and Timmins, 2019). This is helps the
managers to estimate future sales, future cost and helps in forecasting the production plan. This
is important to distinguish the fixed cost and variable cost that is essential to make appropriate
cost estimates.
Total cost- This cost is combination of total fixed cost and total variable cost and this
also changes in the level of output likewise with TVC. This need to be noted that TVC and TC
increase initially at decreasing rate and after they increase at increasing rate (Zhang and et.al,
2018). In this decreasing rate shows that rate at which cost increases when output is less. This
helps in improving the overall planning for the management and also leads in improving the
strategic decision in the organisation.