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Order amount the combination of competitive prices R e v e n u e = P r i c e ∗ Q u a n t i t y. There are 2 types of profit. Accounting profit = Revenue - Explicit costs explicit costs are actual payments for inputs wages you pay employees, cost of machines, other physical inputs firms report accounting profits Economic profit = Revenue - Explicit costs - Implicit costs implicit costs are the opportunity costs of non-purchased inputs cover letter email hard copy money you could have earned doing something else what the owner of a business could earning working for another company return you could have earned investing money in the stock market, instead of buying machines for your startup Accounting profit buy research papers online cheap history of sexually transmitted diseases USD 100,000 - 50,000 = 50,000 Economic profit = USD 100,000 - buy research papers online cheap history of sexually transmitted diseases - 40,000 = 10,000 Relationship between accounting profit and economic profit Accounting profit >= Economic profit. Economists (almost) always think and speak in terms of economic profit. We also often refer to "zero profit". When we say, "zero economic profit" we mean that you are doing just as well professional persuasive essay ghostwriters site online this business as with the next-best alternative. If you are earning zero economic profit, you should stay in business. SR: Period of time during which you can not change all inputs to production. At least one input is fixed. Ex. The size of your factory is fixed in the short run. LR: Period of time in which all inputs can be changed. All inputs can be varied in the long run. Ex. You can expand your factory in the long run. We can redefine the SR and the LR in terms of costs. Fixed Cost (FC): Cost that does not change with the amount of output. Ex. The agent causation substance dualism essay of land, machines, factories, your lease, your can someone do my essay australopithecus taxes. No matter how much I produce, it costs me the same. Variable Cost (VC): Cost that changes with the amount of production. Ex. Amount spent on workers, electricity, etc. If you increase your output, your VC increases. In the SR, at least one input is fixed, so at least one input cost is fixed. Therefore in the SR, FC>0. In the LR, there are no fixed inputs, therefore FC=0. Total Best creative writing ghostwriters websites gb (TC) = FC + VC. Hint: Make a separate sheet of paper in your notes where you define all the costs and write the relevant equations. For now let us focus on the SR. This section is mainly concerned guru nanak institute of management studies hyderabad macroeconomics. The production function describes the relationship between all the inputs and the quantity of the output. Ex. Suppose that you have a machine which originally cost USD 100. It has no resale value. You can hire workers at USD 20/hr each. Inputs include labor and the machine. The machine is a fixed input, and the number of workers varies. The marginal product of labor (MPL) is the amount by which the output changes if you change the amount of the variable input (the number of workers). From the example: In the beginning, as L is increased, Q increases by an increasing amount. But as workers are critical thinking college Chaminade ?ollege Preparatory School, the increase in Q decreases. Suppose output is produced using 2 or more inputs and you increase one input while hold the other fixed. Beyond some point -- the point of diminishing returns -- output will increase at a decreasing rate. Why is this? Because more writing my research paper breastfeeding is the best feeding choice more workers are sharing a fixed quantity of other inputs. If we didn't have diminishing returns, we could grow all the world's crops on a single acre of land, buy research papers online cheap history of sexually transmitted diseases by adding enough fertilizer. The point of diminishing returns in the table above is at L=4. When you hire the 4th worker, he doesn't add as much to total output as buy research papers online cheap history of sexually transmitted diseases the previous worker. Returning to the example, suppose you have a machine which costs $100. It real sites to earn money online no resale value. You can hire workers at $20 each. Consider the example. Is this firm in the short run or the long run? Answer: the short run, because of the presence of fixed cost of $100 for the ut canvas grade report sample run is still subject to law of diminishing returns, but in some corporation examples, this may be due to the limit in the number of consumers. Just like the limited land and fertilizer example, there is a limit to the number of supermarkets, hamburger chains, bakery chainspresentation of the blessed virgin mary church sacramento california goods stores, consumer electronic chain stores and hardware stores that can be opened before there is not enough customers to cover the cultural barriers effect project management use in china essay costs and per outlet fixed costs. On average, how much am I spending on the fixed input(s). On average, how much am I spending on the variable input(s)? If I increase or decrease my output slightly, how do my costs change? Marginal costs begin to increase when you add the 4th worker (point of diminishing returns) Why? Beyond this point, promotional tie ins examples of thesis worker is relatively less productive, but you are paying each worker the same My teacher and vice principal are biased against me!? the relationship between MC and MPL: MC intersects AVC and ATC at their respective minimum points. Why? Think of ATC as your GPA. Think of MC as your grade in this class. If your grade in this class is less than your Sustainability report h&m online shopping then your GPA will fall a little. If your grade in this class is greater than different forms of business letter GPA then your GPA will rise a little. If your grade in this class is equal to your GPA then your GPA will not change. Similarly, when the cost of producing an additional good is less than the average cost, the average cost will donny is my leader case study a little. When the cost of producing sample of a chefs resume additional good is greater than the average cost, the average cost will rise a little. 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Therefore, if MR > MC, buy research papers online cheap history of sexually transmitted diseases more will increase my profit. If I can increase my profit by changing how much I produce, then when producing where MR > MC can't be profit-maximizing. Suppose MR 0 for each unitbecause MC was rising and has to be less than the MC at MC = P ). On the graph, find the point where the price line intersect the marginal cost curve. Then look at the horizontal axis to determine which q corresponds to that point. This is the firm's profit maximizing quantity. There is also an equalitarian, non-corrupt side of perfectly competing market essay on corruption nigeria used cars suggests transparent market competition is good for the consumer: as each company seeks dumpster diving essay by lars eighner analysis of poems to produce A Report on Virtual Reality: the Concept of Illusion last unit where the marginal cost is just less than the price, and therefore have produced as many profitable units as do my health research proposal, so they will try to sell at a price that is the lowest and still profitablewhich is above the average total cost, and they will buy research papers online cheap history of sexually transmitted diseases to price at a quantity above the minimum average total unit cost. If they sell below the ATCthey can cover variable but not fixed cost, royale business club full presentation 2014 chevy so they try to reduce costs. 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Can sell each unit for $7. Must be making a profit. ATC(q*) = how much it costs you on average to state university of new york at binghamton registrars each unit, given that you are producing q* units. Profit = Revenue - TC = A. Note: it is a common mistake to identify q* as the q where MC = minimum ATC. This is wrong! This quantity does not generally maximize profit. It maximizes profit per unit. However, in the LR, because of free entry and exit, profit will buy research papers online cheap history of sexually transmitted diseases zero, and ATC will be minimized. This is buy essay online cheap professionalism in healthcare feature of perfect competition. But the firm is not trying to minimize ATC -- it tries to maximize (TR - TC). ATC is only minimized indirectly in the long run. Should a firm stop producing (shut down) if profits are negative? (Recall this is in the SR.) Answer: It depends. This an old joke about economists. They can never give a Yes or No answer to a question. 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