Micro Economics Short Run Versus Long Run

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Micro Economic Exam Long Run versus Short Run 1. Introduction Competitive market equilibrium is the traditional concept of economic equilibrium, appropriate for the analysis of commodity markets with flexible prices and many traders. It relies crucially on the assumption of a competitive environment where each trader decides upon a quantity that is so small compared to the total quantity traded in the market that their individual transactions have no influence on the prices. This paper will discuss the short run competitive equilibrium versus the long run competitive equilibrium and the differences between the short run and long run shut down decision of a firm. 2. Short run versus long run competitive equilibrium in an…show more content…
Thompson 's strategy hinged on something that would make his company a rarity among U.S. pasta producers. Most manufacturers purchased their pasta flour from commercial mills, rather than producing it on their own, but from the start Thompson preached vertical integration, striving to realize the financial benefits of owning his own flour-making facility and the greater control over quality such ownership would give him. He decided to build his production plant in Excelsior Springs, Missouri, selecting the location because of the presence of pure spring water and, more important, because of Excelsior Springs ' proximity to rail lines accessing North Dakota durum. The $50 million, state-of-the-art facility began production in 1988, officially making Thompson 's AIPC a participant in the growing pasta industry. By 2004 the company was the largest producer of dry pasta in North America, with revenues of $417.4 million. With more than 220 dry pasta shapes vertically-integrated facilities, continued technological improvements and development of a highly-skilled workforce they produce high-quality pasta at costs below those of many of the competitors. The demand for pasta, prompted AIPC to increase its production, order more raw materials - a variable input. The same applies to labor, but the plants and the equipment on the other hand, would be the fixed input. The short run is the period in which production is increased by
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