Economics Short Run Vs Long Run Costs Questions Medium
The concept of average revenue of innovation refers to the revenue generated from the sale of new or improved products or services resulting from innovation. It represents the average amount of money earned per unit of output sold.
In the short-run, the average revenue of innovation is closely related to the short-run costs. When a firm introduces an innovative product or service, it incurs additional costs such as research and development expenses, marketing costs, and initial production costs. These costs are considered as short-run costs since they can be adjusted in the short term.
The average revenue of innovation in the short-run is influenced by the demand for the new product or service. If the demand is high, the firm can charge a higher price, resulting in higher average revenue. However, if the demand is low, the firm may need to lower the price to attract customers, leading to lower average revenue. Therefore, the relationship between average revenue of innovation and short-run costs is influenced by the demand conditions and pricing strategies.
In the long-run, the average revenue of innovation is influenced by the long-run costs. Long-run costs include not only the initial costs but also the ongoing costs associated with the production and distribution of the innovative product or service. These costs may include production scale-up, hiring and training of additional staff, and investment in new technology or equipment.
The relationship between average revenue of innovation and long-run costs is determined by the profitability of the innovation. If the average revenue generated from the innovation exceeds the long-run costs, the firm can earn profits. However, if the average revenue is lower than the long-run costs, the firm may incur losses. Therefore, the firm needs to carefully assess the long-run costs and potential revenue streams to determine the viability and profitability of the innovation.
In summary, the average revenue of innovation is influenced by both short-run and long-run costs. In the short-run, it is influenced by the demand conditions and pricing strategies, while in the long-run, it is determined by the profitability of the innovation relative to the long-run costs.