Diseconomies of Scale, and the Law of Diminishing Return

Diseconomies of Scale, and the Law of Diminishing Return Compared to other markets, why do economists consider perfect competition to be the most efficient market structure? Perfect competition is the most efficient market structure because, in the long run, each firm in the market will be producing at its minimum average cost, or per-unit. This means that consumers get desired goods and services at the lowest possible prices, and also that the firms are economizing on societys scarce resources to the greatest extent possible. What is the difference between the concepts of diseconomies of scale, and the law of diminishing return? (4 marks) Law of diminishing return occurs in the short-run when one factor is fixed. If the variable factor of production is increased, there comes a point where it will become less productive and therefore there will eventually be a decreasing marginal and then average product. When long-run average total cost rises as output increases, there are said to be diseconomies of scale. a. Sally owns a ceiling fan company. Last year, she sold 1000 ceiling fans at $50 each, and each fan cost her $20. Before going into the ceiling fan business, she worked as a fan-dancer at $25,000 a year. She used her own money to buy the fans by withdrawing the money from her savings account where it was earning five percent annual interest. Calculate Sallys economic profit and her accounting profit. Should Sally continue with her ceiling fan business? Explain. (6 marks) If her economic profit is at least zero, Sally should stay in business. Her TR = $50,000 and her total accounting cost is $20,000, for an accounting profit of $30,000. She forgoes interest on savings of $20,000 (.05) = $1,000 as well as forgone earnings of $25,000. This leaves $4,000 in economic profit, so she should stay in business. Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shops average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bobs economist explains that ATC is U-shaped for two reasons. The first reason is the existence of diminishing marginal product, which causes it to rise. What is the second reason? Explain your answer. Assume that the marginal cost curve is linear. (4 marks) Average fixed cost always declines as output rises because fixed cost is being spread over a larger number of units, thus causing the average total cost curve to fall. a. Provide two circumstances in which monopoly may offer efficiency advantages over competition. (4 marks) A monopolist might be better positioned to exploit economies of scale leasing to an equilibrium which gives a higher output and a lower price than under competitive conditions. As firms are able to earn abnormal profits in the long run there may be a faster rate of technological development that will reduce costs and produce better quality products for consumers. This is because the monopolist will invest profits into research and development to promote dynamic efficiency. Explain the practice of tying and discuss why it is controversial. (5 marks) Tying is the practice of bundling goods for sale. It is controversial because it is perceived as a tool for expanding the market power of firms by forcing consumers to purchase additional products. However, economists are skeptical that a buyers willingness to pay increases just because to products are bundled together. In other words, simply bundling two products together doesnt necessarily add any value. It is more accurately believed to be a form of price discrimination. Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly. Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels. (5 marks) The source of the tension exists because total profits are maximized when oligopolists cooperate on price and quantity by operating as a monopolist. However, individual profits can be gained by individuals cheating on their cooperative agreement. This is why cooperative agreements among members of a cartel are inherently unstable. a. If the average total cost curve is falling, what is necessarily true of the marginal cost curve? If the average total cost curve is rising, what is necessarily true of the marginal cost curve? (5 marks) When average total cost curve is falling it is necessarily above the marginal cost curve. If the average total cost curve is rising, it is necessarily below the marginal cost curve. Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm? (5 marks) Average revenue is total revenue divided by the amount of output. Marginal revenue is the change in total revenue from the sale of each additional unit of output. Marginal revenue is used to determine the profit-maximizing level of production and average revenue is used to help determine the level of profits. Describe the process by which the market for capital and the market for land reach equilibrium. As part of your description, elaborate on the role of the stock of the resource versus the flow of services from the resource. (6 marks) Equilibrium in the markets for land and capital are governed by the value of marginal product for these factors relative to their supply. One difference between these markets and the market for labor is the distinction between rental value (flow) and purchase price (stock). This difference is reconciled by noting that in efficient markets, the purchase price should reflect the value of the stream of services provided by the land or capital (or the sum of rental values appropriately discounted). a. List and explain two conditions necessary for firms to be able to successfully practice price discrimination. (2 marks) Differences in price elasticity of demand between markets: There must be a different price elasticity of demand from each group of consumers. The firm is then able to charge a higher price to the group with a more price inelastic demand and a relatively lower price to the group with a more elastic demand. By adopting such a strategy, the firm can increase its total revenue and profits. To profit maximize, the firm will seek to set marginal revenue = to marginal cost in each separate (segmented) market. Barriers to prevent consumers switching from one supplier to another: The firm must be able to prevent market seepage or consumer switching defined as a process whereby consumers who have purchased a good or service at a lower price are able to re-sell it to those consumers who would have normally paid the expensive price. This can be done in a number of ways, and is probably easier to achieve with the provision of a unique service such as a haircut rather than with the exchange of tangible goods. Seepage might be prevented by selling a product to consumers at unique and different points in time for example with the use of time specific airline tickets that cannot be resold under any circumstances. Explain how each of the following industries practices price discrimination: (6 marks) restaurant Restaurants sometimes have childrens menus. It can be profitable if adults who come to restaurants with children are, on the average, more sensitive to prices on menus than adults who come to restaurants without children. Children often do not value restaurant food and service, and often waste a large part of their food. Parents know this and do not want to pay a lot for their childs meal. If restaurants treat children like adults, the restaurants may lose customers as families switch to fast-food restaurants. If this explanation is correct, then restaurants price discriminate. airline Airlines charge different prices for seats on the same plane, depending on when the ticket was purchased, how long the traveler will be staying at the destination, etc. Of course, the cost of operating the plane is independent of these variables. Hairdresser A hairdresser may charge a lower price to children than to adults. The reason they do this is that they believe children to have a differing elasticity of demand to adults. In other words, the price needed to maximize revenue from children is not the same as the price needed to maximize revenue from adults. By charging different prices they will maximize revenue from both groups Calculate the total revenue without price discrimination as well as with price discrimination, and complete the table with your calculations. (4 marks) Price Qd TR TR (with perfect price discrimination) 30 0 22 10 220 220 14 16 224 304 10 24 240 464 7 38 266 562 Briefly describe the characteristics of each of the following market types. Give an example of each market type. (8 marks) pure competition The goods being offered for sale must all be the same. The buyers and sellers must be so numerous that no single buyer or seller influences the market price. Buyers and sellers are price takers. An example would be the wheat market. Monopoly A monopoly is a market in which there is only one seller and the seller sets the price of the product, given the demand curve for that product. An example would be a local cable television company. Oligopoly An oligopoly is a market in which there are only a few sellers, and the sellers do not always compete aggressively. An example would be airline routes. monopolistic competition Monopolistic competition is a market containing many sellers offering slightly different products. Because the products are not the same, sellers have some ability to set price. An example would be the software industry. Use the graph below to explain why a profit-maximizing monopolistically competitive firm must operate at excess capacity. Why is a perfectly competitive firm not subject to the same constraint? (6 marks) Competitive firms do not face downward-sloping demand. The graph shows the firm choosing a level of production in which the intersection of marginal revenue and marginal cost occurs at an output level where average total cost is decreasing. This profit-maximizing output level is less than the efficient scale (minimum of average total cost) and therefore the firm is said to be operating at excess capacity. If the monopolist depicted in the graph below sets a price of $10 and sells 100 units, the corresponding marginal revenue is $5 and marginal cost $3. What recommendation regarding price and quantity would you give this monopolist? Explain your answer. (6 marks) Since MR exceeds MC, recommend an increase in output. Greater sales will require a price reduction. So reduce P below $10 and increase Q above 100. The marketing division of a firm has measured demand for its product and reports that it is Q = 24 P, where Q is units and P is price per unit in dollars. The cost is given in the table below. Complete the table and determine the profit-maximizing level of output for this firm. (6 marks) As indicated in the table below, the optimal output is Q = 5, where MR = MC = 5.80. Output Total Cost Price Revenue Profit 0 10 24 0 -10 1 18 22 22 4 2 20 20 40 20 3 22 18 54 32 4 25 16 64 30 5 29 14 70 41 6 34 12 72 38 7 40 10 70 30 8 48 8 64 16 Define the following terms and explain their importance to the study of economics. (9 marks) barriers to entry Barriers to entry make it difficult or impossible for other firms to enter an industry, thus allowing monopoly to continue to exist. Some examples of barriers include legal restriction on entry, patents, control of scarce resources, large sunk costs, technical superiority, and economies of scale. Patent A patent is a government-granted legal monopoly given to the inventor of a new product or process. During the life of the patent, the firm has a protected monopoly position. Thus, it serves as a barrier to entry. natural monopoly A natural monopoly is an industry in which advantages of large-scale production make it possible for a single firm to produce the entire output of the market at lower average cost than a number of firms each producing a smaller quantity. Most natural monopolies are regulated utilities.

Unbridled Ambition in Shakespeares Macbeth Essay -- Macbeth essays

Unbridled Ambition in Macbeth      Ã‚  Ã‚   Where is there a page in William Shakespeare's tragic play Macbeth which does not present the selfish virtue of personal ambition. This paper addresses the problem of ambition in the drama.    In "Memoranda: Remarks on the Character of Lady Macbeth," Sarah Siddons mentions the ambition of Lady Macbeth and its effect:    [Re "I have given suck" (1.7.54ff.)] Even here, horrific as she is, she shews herself made by ambition, but not by nature, a perfectly savage creature. The very use of such a tender allusion in the midst of her dreadful language, persuades one unequivocally that she has really felt the maternal yearnings of a mother towards her babe, and that she considered this action the most enormous that ever required the strength of human nerves for its perpetration. Her language to Macbeth is the most potently eloquent that guilt could use.   (56)    Clark and Wright in their Introduction to The Complete Works of William Shakespeare interpret the main theme of the play as intertwining with evil and ambition:    While in Hamlet and others of Shakespeare's plays we feel that Shakespeare refined upon and brooded over his thoughts, Macbeth seems as if struck out at a heat and imagined from first to last with rapidity and power, and a subtlety of workmanship which has become instructive. The theme of the drama is the gradual ruin through yielding to evil within and evil without, of a man, who, though from the first tainted by base and ambitious thoughts, yet possessed elements in his nature of possible honor and loyalty. (792)    In "Macbeth as the Imitation of an Action" Francis Fergusson states the place of Macbeth's ambition in the action of the play: .. ...iion of Critical Essays. Alfred Harbage, ed. Englewwod Cliffs, NJ: Prentice-Hall, Inc., 1964.    Johnson, Samuel. The Plays of Shakespeare. N.p.: n.p.. 1765. Rpt in Shakespearean Tragedy. Bratchell, D. F. New York, NY: Routledge, 1990.    Kemble, Fanny. "Lady Macbeth." Macmillan's Magazine, 17 (February 1868), p. 354-61. Rpt. in Women Reading Shakespeare 1660-1900. Ann Thompson and Sasha Roberts, eds. Manchester, UK: Manchester University Press, 1997.    Shakespeare, William. The Tragedy of Macbeth. http://chemicool.com/Shakespeare/macbeth/full.html, no lin.    Siddons, Sarah. "Memoranda: Remarks on the Character of Lady Macbeth." The Life of Mrs. Siddons. Thomas Campbell. London: Effingham Wilson, 1834. Rpt. in Women Reading Shakespeare 1660-1900. Ann Thompson and Sasha Roberts, eds. Manchester, UK: Manchester University Press, 1997.    Unbridled Ambition in Shakespeare's Macbeth Essay -- Macbeth essays Unbridled Ambition in Macbeth      Ã‚  Ã‚   Where is there a page in William Shakespeare's tragic play Macbeth which does not present the selfish virtue of personal ambition. This paper addresses the problem of ambition in the drama.    In "Memoranda: Remarks on the Character of Lady Macbeth," Sarah Siddons mentions the ambition of Lady Macbeth and its effect:    [Re "I have given suck" (1.7.54ff.)] Even here, horrific as she is, she shews herself made by ambition, but not by nature, a perfectly savage creature. The very use of such a tender allusion in the midst of her dreadful language, persuades one unequivocally that she has really felt the maternal yearnings of a mother towards her babe, and that she considered this action the most enormous that ever required the strength of human nerves for its perpetration. Her language to Macbeth is the most potently eloquent that guilt could use.   (56)    Clark and Wright in their Introduction to The Complete Works of William Shakespeare interpret the main theme of the play as intertwining with evil and ambition:    While in Hamlet and others of Shakespeare's plays we feel that Shakespeare refined upon and brooded over his thoughts, Macbeth seems as if struck out at a heat and imagined from first to last with rapidity and power, and a subtlety of workmanship which has become instructive. The theme of the drama is the gradual ruin through yielding to evil within and evil without, of a man, who, though from the first tainted by base and ambitious thoughts, yet possessed elements in his nature of possible honor and loyalty. (792)    In "Macbeth as the Imitation of an Action" Francis Fergusson states the place of Macbeth's ambition in the action of the play: .. ...iion of Critical Essays. Alfred Harbage, ed. Englewwod Cliffs, NJ: Prentice-Hall, Inc., 1964.    Johnson, Samuel. The Plays of Shakespeare. N.p.: n.p.. 1765. Rpt in Shakespearean Tragedy. Bratchell, D. F. New York, NY: Routledge, 1990.    Kemble, Fanny. "Lady Macbeth." Macmillan's Magazine, 17 (February 1868), p. 354-61. Rpt. in Women Reading Shakespeare 1660-1900. Ann Thompson and Sasha Roberts, eds. Manchester, UK: Manchester University Press, 1997.    Shakespeare, William. The Tragedy of Macbeth. http://chemicool.com/Shakespeare/macbeth/full.html, no lin.    Siddons, Sarah. "Memoranda: Remarks on the Character of Lady Macbeth." The Life of Mrs. Siddons. Thomas Campbell. London: Effingham Wilson, 1834. Rpt. in Women Reading Shakespeare 1660-1900. Ann Thompson and Sasha Roberts, eds. Manchester, UK: Manchester University Press, 1997.   

Generational Diversity Scenarios in the for-Profit and Nonprofit Sectors

In reading both scenarios the generational differences are very clear. In the first situation with Stan and Alex at the Davis Agency the biggest difference was the technological advances that could be under taken to improve process to deal with the client’s needs. Now Stan being an old timer is having a very difficult time trying any new ideas that cut him out of the loop. Even though Alex conferred with Connor (who was very satisfied) on his way of doing a project Stan felt as if Alex was being insubordinate so wrote him up. Unfortunately, when dealing with older individuals that are unwilling to change you will come to an impasse and not be able to best address which way is different or haw the way things are done can be combined in an effort to satisfy both sides. Now in the second scenario you have three different individuals handling a community effort. While all three try to include older members and younger members there always seems to be someone who leaves feeling that their issues or suggestions have fallen on deaf ears. Now Rick is the one who just doesn’t really care about either side he is a busy man and wants the meetings to go without many interruptions from anyone. This way of approaching the planning of this event leaves all that is involved to try and push their ideas through and walk away feeling as if nothing has been accomplished. While Molly teds to try and find out what is on everyone’s mind she tends to alienate the younger generation whereas they feel their input is not needed. Being that the older residents have been there so long they believe they should have the most input with know the most history. Unfortunately, Barbara follows the same type of meeting style as Molly although the meetings never stay on task and nothing seems to be accomplished. In both of these scenarios the older generation feels put off by the younger generation. In addition, it is as if the older individuals feel that they have lived a long life and can’t gain any viable or solid information from the younger generation sustaining that they may actually have something valuable to provide. While looking at the issues both of these scenarios faced one must wonder what things brought forth conflict. Age and length of time within the organization played the biggest part in these conflicts. On both sides the older generation felt that the younger generation was stepping on their toes and disregarding them as unimportant and unknowledgeable. Having been with a company for some 10+ years one tends to get complacent and knows that the way they have been doing things has worked for so long why try something new. In either scenario it would have benefited both organizations to take a look at how processes could be improved by going viral (out on the World Wide Web). Cutting out some of the face to face meetings would allow more time in recruiting client’s (at the Davis Agency) and cutting down on meetings (within the Bay Street Friends). The technological advances while the older generation is afraid that something will go amiss they have to consider their clients and the people they are serving. The numerous people that one is able to reach with the advances would allow business to multiply as well as the number of donations. When dealing with generational diversity and issues one has to always approach with caution. There are various different impacts when it comes to terminating an employee, due to the laws in place and the EEOC one must be sure that the reasons for terminating any employee do not have to do with Race, Age, Sex, or Religion. A company could get into very serious trouble for firing someone due to their age. I believe in the scenario of Stan and Alex the age difference is a problem in the way of thinking and dealing with clients. When Stan wrote Alex up for insubordination it was not because Alex didn’t perform his job exceedingly and abundantly well it was that he circumvented Stan’s procedure to be included and see the project. Now one could say that Alex over steeped his bounds yet we must remember that Connor (now running the company) felt that this was the best way to meet the client’s needs and was very impressed. Both of the scenarios made very valid points for the Veterans and Gen-Xer’s yet they failed to find a common ground that both sides can agree on when trying to generate business or donations. Veteran’s can try to learn from the Gen-Xer’s by not discounting what they say and the Gen-Xer’s can try some empathy with veterans. In addition, the Gen-Xer’s shouldn’t be so quick to discount the veteran’s and what they know, there are some valuable lessons to be learned from the older generation. Although, the older generation has some very valuable input they must be willing to change with the times and allow growth whether it be for profit or nonprofit. The only way either sector can be successful is to utilize the input from both sides and come up with a collaborative effort that each side can be satisfied with.

How to Conjugate the French Verb Savoir (to Know)