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  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 14 of 36 - Firms In Competitive Markets Section 15 of 22 … Figure 5 - Profit as the Area between Price and Average Total Cost The area of the shaded box between price and average total cost (ATC) is the firm's profit, or loss. Height of this box is price (P) minus average total cost, P – ATC (profit per unit). Width of the box is the output quantity, (Q). Panel (a), P is above ATC, the firm has profit. Panel (b), P is below ATC, the firm has loss. … Panel (a) shows a firm with a profit. A firm maximizes profit by producing the Q at which P = MC (MC being average variable costs). The area of the rectangle (P - ATC) x Q is the firm's profit. … Panel (b) shows a firm with a loss . Here the firm wants to minimize losses. This is also achieved by producing the Q where P = MC. The area of the rectangle (ATC - P) x Q is the firm's loss. … A firm ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 14 of 36 - Firms In Competitive Markets Section 14 of 22 … Figure 4 - The Competitive Firm's Long-Run Supply Curve In the long run for the competitive firm supply curve is its marginal cost (MC) curve above average total cost (ATC) curve. If the firm’s product price falls and stays below ATC, the firm exits the market. This exit is caused by either · fall in price, e.g. caused by fall in demand or competition · increase in ATC, e.g. caused by increasing labor or raw materials costs · no expectations of future profits … A similar analysis applies to an entrepreneur who is considering starting a firm and entering a market. The firm will enter the market if the investor believes it would be profitable in the long run, which occurs when the price of the good > ATC of production. Per Figures A and B Amazon was founded in 1994 but only started earnin...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 14 of 36 - Firms In Competitive Markets Section 13 of 22 … Why does an almost empty restaurant stay open? It might seem the revenue from the few customers does not cover the cost of running the restaurant. A restaurant owner makes a distinction between fixed and variable costs. Many of a restaurant's costs are fixed, including rent, kitchen equipment, tables, plates, and silverware. Shutting down during lunch would not reduce these fixed costs, they are sunk in the short run. … When the owner is deciding whether serve lunch, only the variable costs are relevant including the costs of the additional food ingredients and staff wages. The owner shuts down the restaurant at lunchtime only if the revenue from the few lunchtime customers does not cover the restaurant's variable costs incurred serving them. … An owner of a miniature golf course makes...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 14 of 36 - Firms In Competitive Markets Section 12 of 22 … Economists say a cost is a “sunk cost” when it is committed and cannot be recovered. Because nothing can be done about sunk costs a firm can ignore them when making decisions. A firm cannot recover its fixed costs by temporarily stopping production. Regardless of the quantity of output supplied, even if zero, the firm still has to pay its fixed costs. As a result, fixed costs are sunk in the short run and are ignored when deciding how much to produce. … Consider you place a $15 value on seeing a newly released movie, you would pay up to $15 to see it. You buy a ticket for $10, but you lose the ticket before entering the theater. Should you buy another ticket? Should you go home and refuse to pay a total of $20 to see the movie? The answer is you should buy another ticket. The $15 benefit o...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 14 of 36 - Firms In Competitive Markets Section 11 of 22 ... Figure 3 – The Competitive Firm's Short-Run Supply Curve For the competitive firm in the short run · its supply curve is its marginal cost (MC) curve above average variable cost (AVC) · if product price (P) falls below AVC, the firm is better off shutting down … The competitive firm decides to shut down if total revenue (TR) is less than total variable costs (VC). When divide by the number of units of product the firm's shutdown criterion can be stated as shut down if price < average variable cost (AVC) … When choosing to produce, a firm · compares the price it receives for a unit · to the AVC it must incur to produce the unit If the price covers the AVC, since it has to pay fixed cost (FC) anyway, it will continue production. If the price doesn't cover the AVC, the firm is b...

  What Is Keynesian Economics? A fun Keynes vs. Hayek video: https://www.youtube.com/watch?v=d0nERTFo-Sk … … Ideas of Keynesianism: An over-optimism caused boom economy cannot be sustained forever. Businesses have expanded output too much and the stock market has gone up too high. Eventually, businesses realize they expanded too much and cut back output, the beginning of a recession. People lose jobs and have smaller or no incomes, or fear losing jobs, so they spend less, making the recession even worse. During an economic boom the federal government, to cool down the economy, should: -tax more, to build up a surplus of funds to be used for increased government spending during recessions -spend less, to counteract businesses’ too-rapid growth During an economic recession the federal government, to heat up the economy, should: -tax less to encourage economic investment and spending -spend more, drawing down the surplus of funds built up during the boom … In the U.S.: Democrat politi...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 - Firms In Competitive Markets Section 9 of 24 … Figure 1 illustrates the same profit maximizing quantity information in general terms. Shown are · marginal cost (MC) curve · average total cost (ATC), includes fixed and variable costs · average variable cost (AVC) curve · market price (P) = average revenue (AR) = marginal revenue (MR) At the quantity Q1 · MR1 exceeds MC1 · so raising production increases profit At the quantity Q2 · MC2 exceeds MR2 · so reducing production increases profit The profit-maximizing quantity QMAX is found where · the horizontal P=MR line · intersects the MC curve … … illustrates the same information onaji jōhō o byōsha 同じ情報を描写

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 - Firms In Competitive Markets Section 8 of 24 … Per Table 2 and Figure T2, if Vaca Farm increases production quantity Q from 5 to 6 gallons of milk total profit decreases. The sixth gallon would have · a marginal revenue (MR, column 5) of $6 · a marginal cost (MC, column 6) of $7 Producing the sixth gallon would reduce column 4 total profit by $1, from $7 to $6 So, the Vacas do not produce more than 5 gallons. … Restated from Chapter 1, the Ten Principles of Economics: 1: people face trade-offs 2: the cost of something is what you give up to get it 3: rational people think at the margin 4: people respond to incentives 5: trade can make everyone better off 6: markets are usually a good way to organize economic activity 7: governments can sometimes improve market outcomes 8: a country's standard of living depends on its ability to produce ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 - Firms In Competitive Markets Section 7 of 24 … In the Table 2 and Figure T2 example of the Vaca family farm, column 4 total profit is maximized when the farm produces 4 or 5 gallons of milk, for a total profit of $7. The Vacas can find the profit-maximizing quantity for each marginal (additional) gallon produced by comparing · column 5 Marginal Revenue (MR) · column 6 Marginal Cost (MC) … Column 5 computes MR from change in total revenue as quantity (Q) increases by 1 gallon Column 6 computes MC from change in total cost as Q increases by 1 gallon. Column 7 shows the change in profit MR-MC for each additional gallon produced. Quantity of 1 has · a Marginal Revenue of $6 · a Marginal Cost of $2 · a change in profit of +$4 Q of 2 has · a MR of $6 · a MC of $3 · a change in profit of +$3 Q of 3 has · a MR of $6 · a MC of $4 · a change in p...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 Firms In Competitive Markets Section 6 of 24 … The goal of all firms including competitive firms is to maximize profit. Profit = Total Revenue - Total Cost Here we examine · how a competitive firm maximizes profit · how profit maximization determines the supply curve … Table 2 column 1 · shows the Quantity (Q) of milk the Vaca Family Dairy Farm produces in a given time period Column 2 · shows the farm's Total Revenue (TR) · which is unit price $6 times Q Column 3 · shows the farm's Total Cost (TC), which includes · fixed costs, which are $3 at every level of Q · variable costs, which depend on Q … Here, at each level of Q, variable cost = TC - $3 Column 4 shows the farm's total profit = TR - TC At Q of 0 gallons, the farm has a loss of $3 = $0 - $3 At Q of 1 gallon, it has a profit of $1 = $6 - $5 At Q of 2 gallons, it has a profi...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 Firms In Competitive Markets Section 5 of 24 … For Vaca Farm, per Table 1 and Figure T1 · Column 4 Average Revenue (AR) is how much revenue the farm receives from a gallon (unit) of milk · Column 5 Marginal Revenue (MR) is how much additional revenue the farm receives if it increases production of milk by 1 gallon AR = Total Revenue (TR) divided by the Quantity (Q) of output. AR is how much revenue a firm receives for the typical unit sold. AR always equals $6, the constant market-given Price (P) of a gallon of milk. MR also always equals $6. This result shows a situation that applies only to competitive firms · P is given and constant for a competitive firm · when Q rises by 1 unit, TR rises by constant P dollars · MR = P = AR … … average revenue heikin shūeki 平均収益

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 Firms In Competitive Markets Section 4 of 24 … Like all businesses, a firm in a competitive market tries to maximize profit. Consider an example competitive firm, the Vaca Family Dairy Farm. The Vaca Farm, per Table 1 · produces a quantity of milk, Q · sells each unit (gallon) at the market price, P · the farm's total revenue is P x Q If a gallon of milk sells for $6 and the farm sells 1 gallon, its total revenue is $6. … Because the Vaca Farm is small compared to the market for milk, it must take the price as given by the market. If the Vacas double the amount of milk they produce to 2 gallons · the market price of milk remains the same · their total revenue doubles to $12 … Table 1 shows revenue for the Vaca Family Dairy Farm at various quantities of milk produced and sold. Column 1 shows the amount of output the farm produces. Column 2...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 Firms In Competitive Markets Section 3 of 24 … What is a competitive market? A competitive market has three characteristics · there are many buyers and many sellers · the products offered by the many sellers are the same or very similar · firms can freely enter or exit the market As a result the actions of any single buyer or seller in the market have little or impact on the market price. Each buyer and seller takes the market price as given. … No single consumer of milk can influence the price of milk because each buyer purchases a small amount relative to the size of the market. Each dairy farmer has no control over the price of milk because many other suppliers are selling the same product. Because any producer can sell all it wants at the going price it has little reason to charge less. If a producer charges more, buyers will buy from...