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Long Run Entry and Exit Decision definitions

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  • Long Run
    A period when all costs can be adjusted, allowing firms to fully enter or exit a market based on profitability.
  • Exit Decision
    A choice to leave a market permanently when total revenue cannot cover total costs over time.
  • Entry Decision
    A choice to join a market when price exceeds average total cost, signaling potential for profit.
  • Average Total Cost
    A measure combining all costs per unit of output, crucial for determining long run market participation.
  • Average Variable Cost
    A measure of variable expenses per unit, relevant for short run production but not for long run exit.
  • Fixed Cost
    An expense that cannot be changed in the short run but becomes adjustable in the long run.
  • Variable Cost
    An expense that changes with output and is the only relevant cost in the long run.
  • Economic Profit
    A calculation that includes opportunity costs, often resulting in zero even when accounting profit is positive.
  • Accounting Profit
    A calculation based solely on monetary costs, typically higher than economic profit.
  • Opportunity Cost
    A value of the next best alternative forgone, included in economic profit but not in accounting profit.
  • Profit Maximization
    A condition where marginal revenue equals marginal cost, determining optimal output.
  • Loss
    A situation where price falls below average total cost, prompting potential exit in the long run.
  • Shutdown Point
    A price level at the minimum of average variable cost, below which short run production ceases.
  • Marginal Cost
    An increase in total cost from producing one more unit, intersecting with marginal revenue for optimal output.
  • Price Level
    A market-determined value that guides production, profit, and exit decisions for firms.