It's Economics assignment Example | Topics and Well Written Essays - 250 words

It's Economics - Assignment Example argument is that there will be an increase in the supply of the natural gas, this will lead to a decrease in the price in the long run, hence consumers will benefit. Thus making the gas fueled track cheaper to use (Taylor et al, p 261). From the Long Run Average Cost (LRAC) curve, as the prices of the crude oil drop, the firm will operate at an increasing output enjoying the economies of scale as the factors of production are still not fully utilized. This will continue up to the point indicated by the arrow, the minimum efficient scale (MES) where the Long-term Average Cost will start increasing and the operation at that level will lead to cost increasing faster than the output, hence having diseconomies of scale. The Long Run Average Cost (LRAC) curve for the gas prices will take longer than the one for oil in the economies of scale section as the prices of gas is assumed to drop further from the analysis of Park Company and hence the tractor company will enjoy increased output for a longer time. To maximize profit I will choose to use gas as its Long Run Average Cost LRACs curve stays within the economies of scale section a for long period thus increasing output and maximizing the profit. This is from the fact that the gas prices will drop for a quite longer time. The following information will help to ascertain which of the two theories is true, the world reserves of both the gas and the oil and the political status of the countries which produces them. Some countries may be unfriendly and thus punish the importing country and our company by hoarding the products or increasing the prices. The amount of the world reserves of the both the oil and the gas and which one will supply the demands for long time. The current and the likely future legislation which may favor the use of either of the two products, gas or the oil depending on the effect of on environment. The best strategy for the company is the one that increases the output at the least price