Economics for Business and Management Essay Example | Topics and Well Written Essays - 1000 words

Economics for Business and Management - Essay ExampleThe demand curve may take an unique shape like that in figure 3.5 for two major reason, firstly if the merchandise is of an inferior nature. Secondly if the customer believe that even though the wrong is high the quality is worthy it, hence they demand buying more. With respect to figure 3.6 The demand curve will happen to channelize incase at every and each price the customers atomic number 18 prepared to buy more or less than before (GILLESPIE, 2011) Similarly supply curve combines all the goods produced and offered for sale in the market against presumption price (THOMPSON, 2010). Goods are only sold when pull ahead of the producers equates costs or is greater than that which means supply curve stinkpot be indicated as cordial cost. People have to pay a received cost to attain some benefit. The intersection of demand and supply provides market sense of labyrinthine sense at which symmetricalness price and equilibr ium quantity is determined (AFRIAT, 2003). Now if the equilibrium conditions are dismantled the economic strength will also be lost in the process such in the case of benefits and costs, there may be welfare loss or even welfare gain too. Assuming a condition where minimum price is desexualise above the equilibrium prices indicate setting a price floor for a certain commodity. Suppose g everywherenment introduces price floor on cotton to foster the small producer, this will result in increasing prices where consumers will be required to pay higher(prenominal) prices that the goods actual worth. In an open competition the prices might have shifted down to equilibrium but due to price floor that wont be possible. In Fig. 1, Pf price is set to be fixed at $4 where quantity supplied is 2kg Cotton and demand is 1.5kg while at equilibrium consumers might have 1.8Kg cotton at less price of $3.2. So, with an increase in price over equilibrium has reduced the social welfare as the surplu s cotton is not demanded yet the consumers are required to pay higher for limited quantity (WESTON & TOWNSEND, 2009). The social cost of cotton is more than the social benefits which sums up the negative net welfare at large. Question 2 (Why a profit maximizing firm produces the output that equates marginal revenues to marginal costs? (MR=MC)) In monopoly or even in perfective aspect competition, a firm optimizes its profit and output where marginal cost and marginal revenue are enough (GRIFFITHS & WALL, 2011). All approaches to analyse maximized profits end up at MR and MC. If we examine integrality revenue and total cost they are also summed up by the marginal. Secondly marginal curves provide the slope of change over by which accuracy can easily be maintained. In perfect competition firm has MR=MC at two item. First at output level 1 and at output level 7. Firms always prefer the highest output to be produced while secondly at output level 1, though MR=MC but the total cost is below total revenue and the profit at this point is also negative (GILLESPIE, 2011). Finally the maximized profit require the biggest prison-breaking and difference between revenues and costs which can only be attained at point where MC=MR as in Fig. 2, at max. profit Average Cost is farthest away from Average Revenue. Mathematically, when MR=MC, after taking 1st derivative the gap between Total Revenue (TR) and Total Cost (TC) is the positive highest. Which after 2nd derivative becomes negative indicating the maximum profit while no other