Custom «Video Stores» Essay Paper Sample
This essay sets to explore the reasons leading to exit of video stores nationwide from the market. It is evident that a fall in demand is the driving force for the alarming shut down. The main cause of the decline in demand is a change in consumer preference and taste. Consumers prefer through-the-mail DVD rental such as Netflix, Rental from kiosks such as Redbox, and on-demand streaming via cable companies. As such, the presence better on-demand and streamed movies affect the demand of individual video stores.
At this level of output, the average cost (AC) is greater than the Marginal revenue (MR) thus the firm is making a loss equivalent to the shaded rectangle (ABCD). This means that the firm is unable to meet part of its costs, especially its average fixed costs, such as rent. Therefore, it is rational for a firm that is making continuous losses make the decision of quitting the industry. The revenue that is computed as quantity multiplied by price is represented by the rectangle 0ADQ, and that of cost is equivalent to rectangle 0BCQ, thus a difference equivalent to rectangle ABCD.
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In conclusion, it is evident that due to fall in demand for individual video stores movies, the firms under perfect competition are making continuous losses prompting their shut down or exit.