Respond to a discussion

In yourresponses, comment on at least two posts from your peers. Research and provide examples from the news of firms in perfectly competitive markets. Discuss with your peers how costs impact these firms' profitability.

Hello everyone,

Earlier in the course, I had clicked on the wrong simulation and was unsure on what one I had clicked.It turns out that this weeks simulation was the one I had clicked so I was unable to play.However, after reading the instructions and your posts, I have a clear understanding of how the game was designed and the purpose of the game.

Simply put, if I were running my own business, I would want to exit the market if my total revenue was less than my total cost of production.From our readings I am able to break this down to where I would exit the market if the price of my good is less than the average total cost of production (Mankiw, 2021).I would also want to consider and assess the barriers to exit the market.One barrier that I would closely consider is the ease or lack there of, of liquidizing my assets."Costs associated with market exit can force firms to operate at lower returns than desired and create market entry barriers to keep other firms out of the market (Nargundkar et al., 1996)."Before entering a market, I would analyze barriers such as the start-up costs and the time to recover those costs.I would also consider how saturated the market is in my area of operation, which could affect my revenue maximization.Next, I would follow the entry rule to ensure that the price of my good is greater than the average total cost (Mankiw, 2021).

Marginal costs allows businesses to figure the cost of producing one additional unit.This calculation is a great tool to determine the ideal quantity of outputs to maximize profits.As a business owner, I would increase outputs if the marginal revenue exceeded the marginal cost.Opposite of this, I would decrease outputs if my marginal cost was greater than marginal revenue."At the profit-maximizing level of output, marginal revenue equals marginal cost (Mankiw, 2021)."

Businesses have more flexibility in the long run.This results in average total costs rising in the short run when production increases because the options to expand production are limited.In the long run, businesses have the ability to open new plants/factories which can lower the average total costs back down."In the long run, the firm gets to choose which short-run curve it wants.But in the short run, it has to use whatever short-run curve is has, as determined by decisions it has made in the past (Mankiw, 2021.)"

References

Mankiw, N. G. (2021). Principles of economics (9th ed.). Boston, MA: Cengage Learning.

Nargundkar, S. V., Karakaya, F., & Stahl, M. J. (1996). Barriers to market exit.Journal of Managerial Issues, 239-258.