Managerial Economics - Doc

Added on - 21 Apr 2020

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Running head: MANAGERIAL ECONOMICSManagerial EconomicsName of the StudentName of the UniversityAuthor note
1MANAGERIAL ECONOMICSTable of ContentsAnswer 1..........................................................................................................................................2Introduction..................................................................................................................................2Discussion....................................................................................................................................2Conclusion...................................................................................................................................3Answer 2..........................................................................................................................................4Introduction......................................................................................................................................4Graphs..........................................................................................................................................4Discussion........................................................................................................................................5Conclusion.......................................................................................................................................6Answer 3..........................................................................................................................................7Introduction..................................................................................................................................7Discussion....................................................................................................................................7Conclusion.................................................................................................................................10References......................................................................................................................................11
2MANAGERIAL ECONOMICSAnswer 1IntroductionThe short run equilibrium point of a competitive firm occurs at a point where price equalsmarginal cost. The profit maximizing condition reduces to the condition marginal cost conditionbecause price is given in the market. Competitive firm produces output which is socially optimaland in the long run it operates at the minimum point of long run average variable cost.DiscussionExcess capacity is a situation where firm produces output less than the optimum. It ispossible for firms if they can operate at the falling part of long run average cost. Competitivefirm in the short run produces output where price and marginal cost equalizes. In the short run, itcan enjoy supernormal profit or loss. However, because of free entry and exits, in the phase ofsupernormal profit, new firms enter and reduce profit and this continues unless firms reach to theminimum point of long run average cost. In the phase of loss firm leaves the industry and lossrecovered and exit continues until the industry achieve only normal profit (Dean 2014).Therefore, firms in the long term always operate at the minimum point of long run average cost.a)QuantityPriceTotalrevenueTotalcostMarginalcost0$60$0$50$50160$6070$20260$120110$40360$180170$60460$240240$70560$300330$90
3MANAGERIAL ECONOMICSb)Graph of MC and P0123456$0$10$20$30$40$50$60$70$80$90$100PriceMarginal costQuantityPrice,Costc)From the above demand and cost schedule the equilibrium output level is 3. The marginal cost atthis level of output is $60.ConclusionPerfectly competitive firm produces optimal social output. Firms retain excess capacity toenjoy more than normal profit. Here, firms enjoy economies of scale and can operate at thefalling part of average cost. It is found only for monopolistically competitive firm. For purecompetition, firms utilizes al its capacity to produce socially optimal output.
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