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The long-run contrasts with the short-run, in which there are some constraints and markets are not fully in equilibrium. More specifically, in microeconomics there are no fixed factors of production in the long-run, and there is enough time for adjustment so that there are no constraints preventing changing the output level by changing the ...
An increase in the interest rate, from a leftward shift of the MP curve or higher level of inflation, produces lower total output, Q. The IS curve displays a negative relationship between the real interest rate, located on the vertical axis, and total output, on the horizontal axis.
The IS–LM model shows the relationship between interest rates and output in the short run in a closed economy. The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves illustrates a "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the money markets.
The first term in the RHS describes short-run impact of change in on , the second term explains long-run gravitation towards the equilibrium relationship between the variables, and the third term reflects random shocks that the system receives (e.g. shocks of consumer confidence that affect consumption). To see how the model works, consider two ...
The principal difference between short run and long run profit maximization is that in the long run the quantities of all inputs, including physical capital, are choice variables, while in the short run the amount of capital is predetermined by past investment decisions. In either case, there are inputs of labor and raw materials.
Equilibrium in perfect competition is the point where market demands will be equal to market supply. A firm's price will be determined at this point. In the short run, equilibrium will be affected by demand. In the long run, both demand and supply of a product will affect the equilibrium in perfect competition.
A short-run monopolistic competition equilibrium graph has the same properties of a monopoly equilibrium graph. Long-run equilibrium of the firm under monopolistic competition. The company still produces where marginal cost and marginal revenue are equal; however, the demand curve (MR and AR) has shifted as other companies entered the market ...
This formula is important to relate back to diminishing rates of return. It finds the change in total product divided by change in labour. The marginal product formula suggests that MP should increase in the short run with increased labour. In the long run, this increase in workers will either have no effect or a negative effect on the output.