Assumption 1 | 2 | 3 | 4 |
Any4 one shipping company does not manage a substantial quantity of tonnage. | All shipping companies produce homogeneous5 services. | Every shipping company uses identical (*) production processes. | Every shipping company possess perfect6 information. |
5 | 6 | Condition 1 | 2 |
There is a free entry into shipping industry, in the long-run with a newly-built ship or with a 2nd-Hand one in the short-run (**). | No shipping company can increase the freight rate (***). | The demand curve for ship services is drawn horizontal in the long-run. | The demand curve touches the lowest point of the LRAC (****) curve, where MC (*****) = Freight rate = MR (******). |
3 | 4 | 5 | SOURCE |
Companies aim at maximizing the short-run profit, when MC = MR = freight rate, reaching a single & equilibrium point. | (****) LRAC = long run average cost; (*****) MC = marginal cost. | (******) MR = marginal revenue; in the AC a normal profit is included. | Author aided by Pearce’s dictionary of modern economics |