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1)Why firm operates in the market adopting a marginal thinking(i
1)Why firm operates in the market adopting a marginal thinking(i.e. produce at MR=MC). Why do not they take a holistic thought for profit maximization?
2)Suppose an agent's marginal cost function (V'(E)) is given by V'(E)=(1/2)E, her production function is given by Q=3E and her contract is given by Y=15+0.2Q. (Thus, d=3 and b=0.2 in our notation)
e) If the commission rate (b) is increased to b=0.5, thus Y=10+ 0.5Q, does the agent's effort level where utility is maximized change? Explain f) If the fixed/base pay (a) is increased to a-20, thus Y-20 + 0.2Q, does the agent's effort level where utility is maximized change? Explain
3)
Incomes fall (apples is normal good)
a. Supply is affected
b. Demand is affected
c. Supply curve is shifted to _____
d. Demand curve is shifted to ______
e. Supply curve moves _____
f. Demand curve moves ______
g. Price (increases or decreases ___________ .
h. (Demand or Quantity Demanded) ______________ (increases or decreases)
Assume caramel and apples are complements and the price of sugar falls
a. Supply is affected
b. Demand is affected
c. Supply curve is shifted to _____
d. Demand curve is shifted to ______
e. Supply curve moves _____
f. Demand curve moves ______
g. Price (increases or decreases ___________ .
h. (Demand or Quantity Demanded) ______________ (increases or decreases)
Wages of apple pickers rise.
a. Supply is affected
b. Demand is affected
c. Supply curve is shifted to _____
d. Demand curve is shifted to ______
e. Supply curve moves _____
f. Demand curve moves ______
g. Price (increases or decreases ___________ .
h. (Demand or Quantity Demanded) ______________ (increases or decreases)
The profitability of grapes (an alternate good producers could produce) increases and at the same time consumers expect the price of apples to fall in the future
- Supply is affected
- Demand is affected
- Supply curve is shifted to _____
- Demand curve is shifted to ______
- Supply curve moves _____
- Demand curve moves ______
- Price (increases or decreases ___________ .
- (Demand or Quantity Demanded) ______________ (increases or decreases)
Expert Solution
1)Marginal cost can be defined as the additional cost to the total cost to produce one additional unit of output. Marginal revenue is the additional revenue to the total revenue from the production of one more unit of output.
When a firm try to achieve maximum proft, it has to consider what happens to its marginal cost and marginal when it produce one more more unit of output. The firm will incur an additional cost when producing an additional output and at the same time it receve an additional revenue for that additional output.
Suppose if the marginal cost( additional cost) is greater than the marginal revenue, then it is not profitable for the firm to produce additional unit. So the firm should reduce its production.
If the marginal revenue is greater than the marginal cost, it is profitable for the firm to produce additional unit of output. So a profit maximising firm should increase its output until its marginal revenue become equal to its marginal cost. If firm produce output beyond the mc= mr condition, its cost become greater than revenue and if firm prodce below the mc= mr condition, it can increase its profit by increasing output. That is why they produce at mc= mr and do not take a holistic thought for profit maximisation.
2)e) If commisision rate is increased, there will be an increase in efforts from the more able agents and agents less averse to risk.
f) if fixed base/pay is increased, agent's effort level is going to get decreased
3)Please use this google drive link to download the answer file.
https://drive.google.com/file/d/1R3EeOnZRVq6_yEKzbGIeLloaMn2MHLg0/view?usp=sharing
Note: If you have any trouble in viewing/downloading the answer from the given link, please use this below guide to understand the whole process.
https://helpinhomework.org/blog/how-to-obtain-answer-through-google-drive-link
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