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Economics - Essay Example

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Name: Tutor: Course: Date: University: Question 1 The expressions short-run as well as long-run do not necessarily refer to a particular time period like four months or even five years. The main difference between the two comes in in the flexibility factor of decision making…
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Download file to see previous pages The short-run or long-run of one industry is often different from another. (Moffatt, 2011) A given firm’s costs may be reliant upon the time or period under consideration. Most of the decisions are fixed when a short-run time frame is taken into account and thus the long-run and short-run cost curves are different. Short-run costs and costs in the long-run are, however, related. For instance, a long-run average cost curve is more flat in comparison to a ‘U’ shaped short-run average cost curve. Short-run cost curves usually lie upon the long-run cost curves. Figure1. A graphical illustration of a short-run cost and a long-run cost curves Average costs LATC SATC1 SATC2 SATC3 Quantity Note: SATC stands for Short-run Average Total Costs while LATC stands for Long-run Average Total Costs. Short-run Average Total Costs of a firm differ from the Long-run Average Total Costs since the fixed costs in the short-run can be varied over the long-run. (Mankiw, 2008 p256) In the case of an operator of a port, cost efficiency occurs efficiency occurs where the throughput is made available at the lowest cost possible with resource-prices paid by the operator put into consideration. The economic cost of a port is represented by the relationship depicted by minimum costs of handling any given throughput levels. Over the short-run time period, there must be at least one of the port resources that should be fixed with regards to amount. For example, the buildings or the wharf of a port are some of the resources that cannot be varied in the short-run period. Unit costs in relation to a port’s costs are usually compared by dividing them with their throughput amounts. Figure 2: A graphical presentation of Short-run Total Costs, Short-run Variable Costs and Short-run Fixed Costs. That is; STC, SVC and SFC. Cost STC SVC SFC Port throughput Figure 3: Average costs in the short-run Cost per unit SATC SAVC SAFC Port throughput Note that SATC stands for Short-run Average Total Costs, SAVC for Short-run Average Variable Costs and SAFC for Short-run Fixed Costs. Short-run average total cost is gotten by dividing short-run total cost with throughput. On the other hand short-run average fixed cost is the short-run fixed costs divided by the throughput and short-run average variable cost is short-run variable cost divided by throughput. Average fixed cost reduces in a continuous manner as the level of throughput rises; that is, since a fixed cost continues to be divided by bigger and bigger amounts of throughput of the port. As the amount of throughput rises, average variable cost as well as short-run average cost reduce initially, get to a minimum and afterwards rise. In the port’s long-run, the costs in whole are variable. Therefore, long-run total costs that are incurred by the operator of the port of the port for the given throughput amounts are a total of variable costs. Long-run average total costs are equal to long-run total costs divided by total port’s throughput. A long-run average total cost curve has a negative slope for a given range of throughput and then it starts to increase. Figure 4: Long-run Total Cost curve and a Long-run Average Total Cost Curve. cost port throughput cost per unit LATC Port throughput (Talley, 2009 pp98-100) A convenience store is usually a type of retail business. Costs of a convenience store that maybe short-run may include costs of ...Download file to see next pagesRead More
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