Foundations of Microeconomics Consumers and Firms - Essay Example

Only on StudentShare

Extract of sample
Foundations of Microeconomics Consumers and Firms

The output of the plant is 300,000 units per day at a cost of $30 per unit. The total revenue per day is 300,000 * $30 = $9,000,000. According to Parkin (2005), "A firm shuts down if the price falls below the minimum of average variable cost. The shutdown point is the output and price at which the firm just covers its total variable cost" (p.244).
As we can see, the total revenue exceeds the variable costs and it would be recommended to continue to produce. If sales continue to stagnate and drop, there will come a point at which shutdown will be advisable. When sales have reduced to the 250,000 unit level, it will be necessary to begin layoffs. The revenue at that point would be 250,000 * $30 = $7,500,000 and equal to the variable cost. To avoid shutdown, labor costs would need to be reduced.
The relationship between a change in price and the change in demand is known as elasticity. If a change in price results in no change in demand, this is known as perfectly inelastic demand (Parkin 2005 p. 84). This would be seen in the market for necessities such as electricity or heating fuel. If the ratio of price change is equal to the change in demand, this is known as unit elastic demand (Parkin 2005 p.84). With some items, such as food, an increase in price only results in a small change in demand. Consumers will cut back, but not eliminate, the product. This is known as inelastic demand (Parkin 2005 p.84). ...
Download paper

Summary

I have recently analyzed the operations of your firm in regards to its loss and whether the firm should continue to produce or shutdown. Though the firm is currently losing money due to its fixed costs, it is my recommendation that the firm continue to produce.
Author : jalen95

Related Essays

Perfectly competitive markets
No seller has a bargaining power over another because the products sold in perfectly competitive markets are assumed to be homogenous in nature. Lastly, the motives of the seller participants is maximization of profit, hence they sell where marginal revenues equal the marginal cost.
...
6 pages (1506 words) Essay
microeconomics
Work submitted for assessment must be accompanied by a completed copy of the Faculty Cover Sheet (available on MUSO Blackboard ‘assignment’ link). Each student must attach their own signed cover sheet to the assignment. No assignment will be accepted or marked if it is not accompanied by a signed Cover Sheet by all students. Your name, I.D. number, the tutorial day/time, and the name of the tutor should be shown on the Cover Sheet. An electronic copy will not be accepted. You should retain a copy of the work submitted.
...
2 pages (502 words) Essay
microeconomics
Microeconomics covers a rather broad area: demand and supply, indifference curve analysis, elasticity of supply and demand, production and cost, marginal analysis, market structure, pricing, and so on. This study will attempt to deal with the area of market structure which is very interesting because of its pervasiveness in our lives: Perfect competition, monopoly, monopolistic competition, and oligopoly. An understanding of market structure is essential not only for economists but also for individual businessmen and corporations, for it will help them greatly in dealing with numerous problems...
7 pages (1757 words) Research Proposal
Microeconomics
The ecological paradigm emphasises on the health and survival of ecosystems. This means minimal and controlled exploitation of the ecosystem. On the other hand, microeconomics stresses on maximising the welfare of the people. This involves maximum exploitation of resources. This causes destruction, depletion and pollution. This has led to the development of ecological economics. This field deals with merging the insights of the two paradigms and resolve their differences.
...
4 pages (1004 words) Essay
What is meant by transaction costs and what part do they play in our understanding of the reasons for the existence of firms?
Coase’s theory that the transaction costs form the economic groundwork for all firms, thus becoming the sole reason for the existence of any organisation within marketplace, however has met with a number of contradictions. Many economists contend that existence of firms is not solely dependent on transaction costs. Other abilities (like being able to handle large variety of resources)  are of great advantage to any firm, especially in the context of new technologies, which create various opportunities where the organisation can improve their production values and increase their revenues,...
4 pages (1004 words) Essay
Microeconomics
The various market structures that are discussed within microeconomics are perfect competition, monopoly, monopolistic competition, and oligopoly. One of the objectives of microeconomics is to analyze the mechanisms of market. Microeconomics sets up the relative prices amongst the services and the goods and allocates the available amount of limited resources among the alternative uses. Some of the significant fields of study under this branch of economics include asymmetric information, general equilibrium, game theory and choices under uncertainty.
...
8 pages (2008 words) Term Paper
microeconomics
In addition, microeconomics looks into decisions made by businesses regarding production and prices attached to goods and services produced by individual businesses. In general, microeconomics deals with economic decisions made on a micro level (McEachern 13).
...
5 pages (1255 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!