Difference Between Short Run And Long Run - 1817 Words

In economics, we study four basic market structures. Each market structure possesses different characteristics to one another and these characteristics are what affect the degree of competition and pricing. A monopoly and perfect competition are positioned at both ends of the spectrum while oligopoly and monopolistic competition are in the middle of the two. However, the one market structure we will be focusing on is perfect competition. The main characteristics of this market structure are all products sold are homogenous, all firms are price takers, consumers have complete information when purchasing goods, all firms have little market share and there are no barriers to entry or exit. In this essay I will be describing how firms in a†¦show more content†¦They must also be able to meet their variable costs just to keep running and must also be able to develop the new low cost technology to keep up with the other firms in the carrot industry. The graph below can be used to show how the average firms fixed costs and average total costs decrease due to the lower cost technology. In the short run the firms fixed costs would decrease from AFC1 to AFC2 and therefore the average total cost would also be reduced from ATC1 down to ATC2. Like I previously mentioned above, firms that do not possess this technology must be able to produce revenue that at least meets their average variable costs in the short run. However, Lipsey and Chrystal state that â€Å"If its revenue is less than its variable cost at every level of output, the firm will actually lose more by producing than not producing†. Now that I have described what occurs in the short run when firms acquire new low cost technology, this brings us over to the long run. Like I mentioned beforehand, in the long run all fixed costs eventually become variable costs. Firms that did not previously possess the low cost equipment used to produce carrots and had managed to stay In business by meeting their variable costs would now been able to also develop and obtain the required technology to reduce their costs too. Therefore, all firms in the carrot market will now possess theShow MoreRelatedShort-Run vs. Long-Run Aggregate Supply Curves644 Words   |  3 PagesThere are some significant differences in the short-run and long-run aggregate supply curves. The short-run curve can be said to only apply to the short-run, and is not applicable in the long-run (No author, 2012). The difference between the short-run and long-run aggregate supply curve is assumed to be that there is a period after the price of a good or service increases but the factor inputs have not adjusted yet to this increase. A basic example would be a service provider raising prices, butRead MoreManagerial Economics Chapter 9 Essay1641 Words   |  7 Pageswant at the market price. 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