Economics and long run total cost

Cost-plus pricing is also common in oligopoly markets because it is likely that the few firms that dominate may often share similar costs, as in the case of petrol retailers.

The long run is a planning and implementation stage. By making decisions more complex - such as financial decisions about mortgages - individual consumers fall back on heuristics and rule of thumb processes, which can lead to decision making bias and irrational behaviour, including making purchases which add no utility or even harm the individual consumer.

Sales promotion, such as buy-one-get-one-free BOGOFis associated with the large supermarkets, which is a highly oligopolistic market, dominated by three or four large chains. Cost-plus pricing is a straightforward pricing method, where a firm sets a price by calculating average production costs and then adding a fixed mark-up to achieve a desired profit level.

Costs of production

A large part of what the opera pays must therefore be called rent. Sometimes it pays to go first because a firm can generate head-start profits.

In the simplified case of plant capacity as the only fixed factor, a generic firm can make these changes in the long run: Even though there are a few firms, making the market uncompetitive, their behaviour may be highly competitive.

Oligopolists may be allocatively and productively inefficient. Thus the cost of generating electricity by burning high-sulfur bituminous coal can be measured not only by the cost of the coal and its transport to the power plant among other economic considerations but also by its cost in terms of air pollution.

The super-normal profits they generate may be used to innovate, in which case the consumer may gain.

Costs of production

Cartel-like behaviour reduces competition and can lead to higher prices and reduced output. Each is an example of comparative statics. Each strategy can be evaluated in terms of: Test your knowledge with a quiz Press Next to launch the quiz You are allowed two attempts - feedback is provided after each question is attempted.

The supplies of labour and capital, on the other hand, are responsive to the prices offered for them, and the portion of their return regarded as cost will be greater for those with many alternative uses.

One report from the Organization for Economic Co-operation and Development OECD encourages the use of local policies to directly target and break down the issue. Marginal costs are derived from variable costs and are subject to the principle of variable proportions.

Kinked demand curve The reaction of rivals to a price change depends on whether price is raised or lowered. For example, if an airline raises the price of its tickets from London to New York, rivals will not follow suit and the airline will lose revenue - the demand curve for the price increase is relatively elastic.

Oligopolists may use predatory pricing to force rivals out of the market. Another consideration involves the cost of externalities—that is, the costs that are imposed either intentionally or unintentionally on others.

Key characteristics The main characteristics of firms operating in a market with few close rivals include: In the short run, a profit-maximizing firm will: This is best achieved by selling at a price just below the average total costs ATC of potential entrants.

Long run and short run

In the short run, a profit-maximizing firm will: Firms can be prevented from entering a market because of deliberate barriers to entry. The neoclassical economist Alfred Marshalland others after him, chose this definition for technical reasons, even though it is somewhat more restrictive than the meaning given the term in popular usage.

Working Papers

The super-normal profits they generate may be used to innovate, in which case the consumer may gain. In addition there is full mobility of labor and capital between sectors of the economy and full capital mobility between nations.

Exclusive contracts, patents and licences These make entry difficult as they favour existing firms who have won the contracts or own the licenses. Preliminary versions of economic research.

The Time-Varying Effect of Monetary Policy on Asset Prices. Pascal Paul • Federal Reserve Bank of San FranciscoEmail: [email protected] First online version: November Cost: Cost, in common usage, the monetary value of goods and services that producers and consumers purchase.

In a basic economic sense, cost is the measure of the alternative opportunities foregone in the choice of one good or activity over others. This fundamental cost is usually referred to as. Marginal Cost (MC): Definition: Marginal Cost is an increase in total cost that results from a one unit increase in output.

It is defined as: "The cost that results from a one unit change in the production rate". Is cloud computing right for your business?

Learn about the economics of the AWS cloud and see if it can help your organization gain market advantages. The real value of a starting salary is how much you can buy with it.

In the graph above, if you were living in Tennessee and were offered a 25% raise to move to New York, you could use this map to see that the hidden-cost of living in New York is about 28% higher.

When making decisions consider. Rent: Rent, in economics, the income derived from the ownership of land and other free gifts of nature. The neoclassical economist Alfred Marshall, and others after him, chose this definition for technical reasons, even though it is somewhat more restrictive than the meaning given the term in popular.

Working Papers Economics and long run total cost
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