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Well, both consumers and firms operate 'at the margin'. Marginal utility for consumers and marginal cost for firms.

It's true, only for perfectly competitive firms or monopoly firms under a regulated price, marginal cost pricing. And it's called allocative efficiency.

Reply 1181

Gascoigne

How can diminishing marginal returns affect a firms cost of production?

It seems straight forward, that, if a firm keeps employing people that don't earn the firm as much money as their wage that production costs will go up. But what else :s-smilie:

?

Reply 1182

MeAndBubbles

12

The last point doesn't happen in a competitive market in the longrun. Profit maximisers employ until the MC*MP=W. In the short-run this may not apply because of costs of sacking people.

Anyways...you're describing the law of variable proportions or diminishing returns. One factor is fixed. You stated it pretty well. Maybe other costs could be 'hiring cost' ie. interviews, paying bus fares to interviews, advertising the vacancies.

Reply 1183

dss1990

Kobulingam

I need some help.

Is the following true?

1) Supply curve is marginal cost curve.
2) Demand curve is average revenue curve.

If true, why is 2nd one average, whlie first one is marginal?

1. True. It is the firm;s supply curve.

2. True. AR = MR = D where AR = average revenue, MR = Marginal revenue.

Therefore, the answer to the last part = MR = AR...they are the same...

Reply 1184

Jam1991

Anyone have Mark schemes for GCE ECN 1 2003/04 Market & Market Failure exam papers; I use past papers to revise, only when I downedloaded and did the question papers I was unable to find the mark schemes anywhere... no point in doing them if i can't find out how well I did.
I need both exam question mark scheme and the multiple choice, would be VERY grateful if anyone could dig them out

Reply 1185

MeAndBubbles

12

Kobulingam

I need some help.

Is the following true?

1) Supply curve is marginal cost curve.
2) Demand curve is average revenue curve.

If true, why is 2nd one average, whlie first one is marginal?

as has been said, it's 2) is the marginal revenue or average in perfect comp, but is average in imperfect or monopoly.

Reply 1186

Kobulingam

Ok.

So from a producer point of view,

Supply curve is marginal cost curve
Demand curve is average revenue curve

Thus as a "duality", consumer point of view would have to be,

Demand curve is marginal benefit curve
Supply curve is average cost curve

I hit it bang on?

Reply 1187

romans8:1

Kobulingam

I need some help.

Is the following true?

1) Supply curve is marginal cost curve.
2) Demand curve is average revenue curve.

If true, why is 2nd one average, whlie first one is marginal?

Hi,
1.Supply curve is the MC curve above the AVC under perfect competition. Think about the shutdown condition, a producer will not supply unless he can cover his running costs in the short-run. The monopolist on the other does not have a unique supply curve, because he charges a price greater than MC (mark-up).

2. Demand curve is always equal to the AR regardless of the market stucture. Go back to the formula for AR.
AR=TR/Q
= P*Q/Q
= P
Since AR=P at each level of output, it is the demand curve showing the relationship between price and quatity.

Reply 1188

romans8:1

Hi,
I have a question on the circular flow of income, which deals with injections and withdrawals in a macroeconomy. In the model injections are always equal to withdrawals.

Savings is considered as a withdrawal. It is assumed that once a persons saves, that money goes to a bank which somehow gets injected back into the circular flow as an investment.

My question is:

What happens to flow of money if the money is not saved in a bank or financial institution, but instead is stashed under the pillow at home indefinitely? Will withdrawals still be equal to injections in such a case?

Thanks

Reply 1189

Kev123

Apagg

Yes, except you can now distinguish between SR and LR AC. In SR, only one input can be increased. If that input was capital, the SRAC would not fall because output is linear in capital. It can only be falling in the LR, as it is non linear in labour

Mate another quick question - On a given indifference curve, the marginal utility of good x must be equal to the marginal utility of good y..True or False

I chose false as I thought the only point where MUx=MUy is where the indifference curve and the budget line are tangent i.e the optimal point...What do you think?

Reply 1190

Apagg

13

Kev123

Mate another quick question - On a given indifference curve, the marginal utility of good x must be equal to the marginal utility of good y..True or False

I chose false as I thought the only point where MUx=MUy is where the indifference curve and the budget line are tangent i.e the optimal point...What do you think?

False. Easiest way to see this is to consider the slope of the IC, which is the MRS, or MU1/MU2 (dependent on construction of axes).
If MU1 = MU2, the slope would be (-)1 and the IC would be a straight line. So in general the marginal utilities are not equal at all points

Reply 1191

Kev123

Cheers mate i really do appreciate the help.

Reply 1192

MeAndBubbles

12

Kobulingam

Ok.

So from a producer point of view,

Supply curve is marginal cost curve
Demand curve is average revenue curve

Thus as a "duality", consumer point of view would have to be,

Demand curve is marginal benefit curve
Supply curve is average cost curve

I hit it bang on?

this duality idea, i've only seen in the input market eg. labour, not the output market. I certainly could find the names of the curves if it's the input market.

Reply 1193

JLou01

Could someone please tell me where I'm going wrong here?

Derive the economy's IS curve where:

C = 100 +0.8(Y-T); I = 50-40i; G = 100; T = 20

My answer:

Using this formula for real income: Y = C(Y – T) + I + G
Y = [100 + 0.8(Y – 20)](Y – 20) + 50 – 40i + 100
Y = (84 + 0.8Y)(Y – 20) + 150 – 40i
40i = 84Y – 1680 + 0.8Y² + 150 -17Y
i = (Y²/50) + (67Y/40) – (153/4)

I don't think that this is right though, because the IS curve should slope downwards, and when I put Y=20 and Y=30 into the equation, i increases, when in theory, it should decrease. Have I used the wrong formula??

Thanks for any help! (Rep+)

Reply 1194

MeAndBubbles

12

I saw 2 mistakes, how did you get 84? But before that you wrote (Y - 20)(Y-20), it should only be once (Y - 20)

Reply 1195

JLou01

MeAndBubbles

I saw 2 mistakes, how did you get 84? But before that you wrote (Y - 20)(Y-20), it should only be once (Y - 20)

I thought that because I'm using the formula: Y = C(Y – T) + I + G

where C = 100 +0.8(Y-T)

Y = 100 +0.8(Y-T)(Y-T) + I + G

Is that wrong??? Should I instead be using the formula Y = C + I + G ???

This would give me a linear equation though, and I need to end up with a curve.

Any ideas???

(Also, I got the 84 by multiplying out the brackets and adding 100.)

Thanks btw.

Reply 1196

tw7055

13

JLou01

I thought that because I'm using the formula: Y = C(Y – T) + I + G

where C = 100 +0.8(Y-T)

Y = 100 +0.8(Y-T)(Y-T) + I + G

Is that wrong??? Should I instead be using the formula Y = C + I + G ???

This would give me a linear equation though, and I need to end up with a curve.

Any ideas???

(Also, I got the 84 by multiplying out the brackets and adding 100.)

Thanks btw.

You do not ned the (Y-T) in the first equation

i.e. sub C = 100 +0.8(Y-T) into Y = C + I + G

then you should get a better answer. 0.8 is the MPC

Reply 1197

MeAndBubbles

12

JLou01

I thought that because I'm using the formula: Y = C(Y – T) + I + G

where C = 100 +0.8(Y-T)

Y = 100 +0.8(Y-T)(Y-T) + I + G

Is that wrong??? Should I instead be using the formula Y = C + I + G ???

This would give me a linear equation though, and I need to end up with a curve.

Any ideas???

(Also, I got the 84 by multiplying out the brackets and adding 100.)

Thanks btw.

dude, economists always use linear equations if they can, lol.

yep, as my last post,

your general equation is clearly wrong since there is no parameter for the fixed component of the consumption function.

Reply 1198

alex_hk90

19

JLou01

I thought that because I'm using the formula: Y = C(Y – T) + I + G

C(Y - T) in that context means that the consumption C is a function of the disposable income (Y - T), it does not mean that you multiply the consumption by the disposable income. Since you have an equation for C [which is actually C(Y - T)], you can just use Y = C + I + G.

Reply 1199

MCYan

13

Hiya I have few questions im not sure,they are to do with unemployment

Businesses affect and are affected by unemployment,when it rises sharply,as in a redundancy?,firms may suffer falls in demand but benefit from labour t.....?

Also,identify whether 1-8 are prons or cons of cyclical unemployment(cyc),or structural unemployment(struc) e.g 1=pro/struc

Im really not sure about the answers,they are:

1) as it says it is pro/struc so Im just gonna leave it

2)Likely to cut demand for luxuries within certain regions con/cyc?

3)Provides an ideal time to restructure your workforce nationally Pro/Struc

4)Maybe pools of available labour in certain regions or industrial section con/struc

5)May require a new marketing stragety based on value for money Pro/Cyc

6)Opportunity to open factory on a greenfield site with good supply of labour Pro/Cyc

7)Should reduce voluntary labour turnover for all employers Pro/Cyc

8)National demand boost for goods with negative income elasticity con/cyc

C Explain two probable effects of high unemployment on
1)A firm's marketing strategy
2)Human Resource management

D Impact of high unemployment on revenue
Do you think whether for a firm selling products with income elasticity of -2.5 would fit into either:

Sharply worsen trade
Trade may fall slightly
Little or no effect
or Should make business boom?

Sorry,I have so many questions rushed into you!Thanks in advance!If possible,could you explain some questions?They seem to tricky for me :/

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