Long-Run Profit Maximization Homework Help

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Profit making is an inevitable factor for every business entity. The amount of total profit by selling a product can be calculated as, Total revenue earnings – total cost of that product. So the difference between total revenue earnings and total cost indicates the total amount of profit. To earn the maximum profit, for a long stretch sellers have to take some economic strategies, as the amount of profit depends on several economic factors.

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Bit more about the subject topic

When market situation allows entire firms to make an excess profit in short run for a specific product,then producers start to produce more products.Β  Taking this advantage at that point of time many new business firms takeentry in that market to earn excessive profit. So the numbers of suppliers are enhanced in that market.

With this enhancement, the supply of that product also increased in that market-place. But the demand forthat product remains same, as only the suppliers are increased not the consumers.

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So Β It can be assumed that as the consumers remain same in that market,then their demand of that product also remain same in that market.When demand remains same but supply increases then the price of that product will be reduced as per the demand and supply law. In this situation, the price of the product is going to be reduced still it comes down at it average cost price.

Hence, at this point of time, the price will be same as the average cost of that product for long run. The entire firm can make only normal profit in this condition. As there is no loss so, no one from existing firms exits from the market, but no other new firm from the outside also take an entry in the market. Hence, equilibrium for long run is established in the market.

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