BUS 505 Managerial Economics Discussion: Shutdown and Market Exit

This discussion post delves into core concepts of managerial economics, addressing the law of diminishing returns, budget lines, and the implications of a firm's decision to shut down operations. The analysis begins by defining and illustrating diminishing returns using examples such as fertilizer use on farmland, explaining how increased input can eventually lead to decreased output. The post then explores the role of budget lines and indifference curves in determining consumer equilibrium, highlighting how consumers aim to maximize satisfaction given income constraints. Finally, the discussion examines the difference between a firm shutting down and exiting the market, including an explanation of sunk costs and their impact on short-run decisions. The post includes citations from academic sources to support its arguments.

Running Head: MANAGERIAL ECONOMICS
MANAGERIAL ECONMICS
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MANAGERIAL ECONOMICS
The concept marginal returns state that, in a fabrication progression, if one production
unit upsurges, there will reach a time when one unit harvest will begin going down ceteris
paribus. The supplementary yield gained by a unit growth of the input will, in the long run,
become slighter than the production acquired by the preceding rise in the input unit (Blum &
Holling, 2017). For instance, for a farmer with one acre of land where he plants maize, in
addition to the land, other factors affect the output, including the quality of the seeds and the
quantity of labor that will be used. As the amount of fertilizer is increased, the number of
production increases.it would reach a point whereby the rise in compost leads to a decrease in
production since too much fertilizer is poisonous to plants (Ahmad & Subramanian, 2017).
A budget line is vital since it assists in the determination of the theory of consumer’s
equilibrium and is a crucial factor analysis of consumer behavior which shows the various blends
of two merchandises. The mixture can be purchased using a given amount of money and at
assumed prices. In the budget line, we have the indifference curves (Ahmad & Subramanian,
2017). The indifference curve shows the various combinations of goods that can be purchased at
a given level of income.an increase in an indifference curve means that there is an increased
level of satisfaction. A consumer will try to reach the highest combination to maximize their
comfort.
When a firm shuts down, this is not equivalent to exiting the market. Shutting down can
cut the variable costs to nil in the shut run. The corporation has, however, devoted it to
recompense its fixed costs (Surdu & Mellahi, 2017). Therefore, it produces at amount zero, and
it will operate at fatalities since it is making zero outputs. For instance, over a short time, firms
pay lease on an office or retail space and must do that regardless of ether, they are making profits
or not.

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MANAGERIAL ECONOMICS
In economics, the sunk costs are not refundable. If a firm makes a sunk cost in the short run and
decides to shut down, then it will have a negative total fixed cost. If a firm makes up to produce
no yield, its proceeds become zero (Davis, 2018). Its variable cost is also zero, and hence the
corporation's total cost of manufacture is equal to its fixed cost. The corporation's profit,
therefore, equals to zero minus the total fixed cost as shown below;
Profit= Total revenue-total cost
Profit=p*q-TFC-TVC
PROFIT= 0-TFC-0
PROFIT =-TFC

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References
Ahmad, A., & Subramanian, T. (2017). Quantifying the ‘law of diminishing returns’ in
magnetically controlled growing rods. The bone & joint journal, 99(12), 1658-1664.
Blum, D., & Holling, H. (2017). Spearman's law of diminishing returns. A meta-analysis.
Intelligence, 65(6), 60-66.
Davis, R. J. (2018). Essays on Energy Economics and Market Structure. Investigating Catalysts
for Entry and Exit, 44(6), 45-76.
Surdu, I., & Mellahi, K. (2017). Why wait? Organizational learning, institutional quality and the
speed of foreign market re-entry after initial entry and exit. Journal of World Business,
53(6), 911-929.