Assessment Essay Example | Topics and Well Written Essays - 1500 words

Assessment - Essay ExampleNo single agent in this economy cogency be better off without making a nonher agent worse off. This leads to the achievement of allocative efficiency (MC=AR). It is know as Pareto optimum allocation of resources (Klein, 2007). Productive efficiency In the long tolerate, in a absolutely competitive market structure, the produce is received at the lowest level of average total approach. This phenomenon is known as productive efficiency (MC=ATC). The firms that incur high unit cost are inefficient and are not fit to stay in business in the long run. The forces of opposition would not allow them to weigh down high impairment. Thus, they would be forced to quit industry in the long run. Dynamic efficiency integrity important assumption in the competitive market structure is that all producers in the industry produce homogeneous products. Homogeneity of the products ensure that the products are similar in features and attributes and any single firm would not have the facility to make any innovation such that it would make the products of the firm to differentiated from the products of the former(a) firms. This creates dynamic efficiency. No single firm would be able to enjoy competitive advantage over the others or enjoy any degree of monopoly power. Figure 1 Efficiency in perfect competition (Source Authors creation) Answer 2. ... Short Run Equilibrium In the short run, equilibrium is achieved at the point at which marginal revenue equals marginal cost. As long as value of marginal revenue (MR) exceeds value of marginal cost (MC), producer would expand output since profit level nobbles with rise in output (MRMC, i.e., difference between MR and MC is positive). When marginal revenue is smaller than marginal cost, the producer would reduce output until the two values equate. Thus, in short run, profit maximizing price and output firm is determined at the position where MR equals MC. In short run, firms might compass super conven ing profit if average cost is less than average revenue, or conversely, they might incur a dismissal if the average cost is greater than average revenue. Figure 2 Short run equilibrium to a lower place monopolistic competitive market structure (Source Authors Creation) Long Run Equilibrium In long run, there are scopes of entry of new firms into the industry. Therefore, supernormal profit is erased in the long run. As new firms enter into the industry, demand faced by each firm decreases and Average revenue (AR) plication shifts leftwards. Consequently, supernormal profit falls. Firms would produce at the level at which marginal revenue equals marginal cost and price is determined by the interaction between average revenue and average cost. All firms earn normal profit in the long run. Some firms that incur loss in the short run would leave the industry in the long run and the remaining firms would earn normal profits. Figure 3 Long run equilibrium under monopolistic competitive market structure (Source Authors Creation) In case of monopolistic competition, in the long run, firms operate at the zero profit condition, which ensures that price