Economics Essay Example | Topics and Well Written Essays - 1500 words - 24

Economics - Essay ExampleThis capital expenditure takes time which cannot be completed in the short-run. Similarly, no animated strong can earmark the persistence in the short-run. The reason behind this is that whenever a firm sets up in any industry it has to incur almost sunk costs. In lay man terms, sunk costs argon actually setup costs. These costs are barriers that do not let the firms leave the industry in the short-run as no firm wants to leave the industry without minimizing or cashing in on some of their sunk costs. As we develop already discussed, that no firm can be lured into or pushed-out of the industry in the short-run. The reasons that may tempt the other businesses entering into industry are kill course networks, as discussed above. There are two types of profit that firm makes in the short run based on its costs and revenue. A firm may be making large profits or break-even in this time-scale. In economic terms break-even is known as normal profit because th e advisement includes implicit or opportunity costs, which are not actual cost and hence a firm which is breaking even is making a profit in accounting terms. Normal Profits are usually denoted by AR=AC. Similarly, apart from normal profit a firm might in any case be making a Supernormal profit denoted by a equation ARAC. These profits positions can be shown in the following diagramsIn variety 1 we see the condition in which the firm is making a level of profit that is just enough to persuade the firms to stay in the industry in the short-run but not enough to attract new firms. In short-run when the firm is earning normal profits, the firm is just covering descend costs. Since the TC (Total Cost Calculations) also includes implicit costs like opportunity cost of capital employed, return of capital in alternative uses etc. These are not actual costs and hence breaking even would mean that firm is earning profit which it could earning in alternative businesses and hence