Explain What Happens to Firm Output and Profits in the Long

question 48

Essay

Explain what happens to firm output and profits in the long run when higher energy costs raise the marginal cost of production for firms in a competitive industry.

---

Definitions:

Inventory

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or rendering of services.

FIFO Firms

FIFO (First-In, First-Out) firms refer to businesses that use the FIFO accounting method to manage inventory, implying that the first items purchased are the first ones sold.

Realized Holding Gains

Gains that are recognized when assets such as investments are actually sold for more than their cost, reflecting actual rather than potential profit.

Inventory Costs

Inventory costs include all expenses related to acquiring, holding, and managing inventory, including purchase costs, storage, and handling.