Voluntary trade, based on specialization, benefi ts all. Trade in specialized goods and services today relies on money to lubricate its wheels. It is used to pay for everything from apple tarts to zebra skins. By accepting money, people and nations can specialize in produc- ing a few goods and can then trade them for others; without money, we would waste much time negotiating and bartering.
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We use simple mathematical tools to develop relationships of implied variables in the propounded model. The object of this is to explain microeconomic themes approximately to experiences of firms that produce a single good or service.
When consumer demand intensity and average profit rate are taken into consideration, the average cost and average revenue become fundamental concepts of theory cost and competition.
Keywords : resources; rate of profit; normal and extraordinary profits; market price. El objetivo es explicar los temas de modo aproximado a la experiencia de los empresarios.
Palabras clave : recursos; tasa de ganancia; ganancias normales y extraordinarias; precio de mercado. The phrase as if it were a shadow may be a misplaced metaphor. It may confuse an economics student, but it mainly encourages greater ignorance among firms.
Production costs are the foundation of profitable activity and satisfying consumer needs. Costs are not hidden, but visible and essential; they are not mystical but instead manifestations of the production phenomenon. Competitive rate of profit in an industry expresses the reality of production only if it is based on the costs of production. Rate of profit is the heart of production costs since it reflects opportunity costs.
Competition evens out differences between firms in an industry, and thus, the profit rate is an average rate calculated from average costs in an industry. Firms that are highly or moderately efficient will be more or less competitive than an average firm in the industry. If all firms obtain normal profits, the market price would cover more than average production costs to be equal, or approximately equal, to opportunity costs. If the price of average efficiency companies rules the market in an industry, it is a consequence of the intensity of usual consumer demand Marx , Villalobos Therefore, the market price may be lower than the opportunity cost in less efficient companies and it will be higher in companies that are more efficient.
If the demand falls and the price of more efficient companies rules the market, less efficient and average firms will lose profits. In this case, the market price is lower than the cost of opportunity in less efficient and average firms, but this price could cover or slightly exceed average costs.
In efficient companies, the market price would be equal to the opportunity cost, which would be reflected by obtaining a normal profit. If demand grows, in the short-term, the price of less efficient firms could prevail in the market. For these companies, the market price would be equal to the opportunity cost and they would make normal profits. However, medium and highly efficient companies might obtain abnormal or extraordinary profits since the price would be higher than the opportunity cost.
Average rate of profit is a competitive profit rate that will guide industry firms in the market. This rate is useful in calculating opportunity costs, because it defines a market price with reference to average industry costs and a given intensity of consumer demand. Average rate of profit prevents us from making the mistaken assumption that some costs are not taken into consideration for enterprises and that opportunity costs are the best alternative or discarded value.
To enter into any industry, a firm assumes that the market price is the opportunity cost, which will be shown by normal or extraordinary profits or losses. The comparative advantage concept is useful in describing opportunity costs among companies in the same industry. Given the competitive profit rate in an industry and the typical demand in the market, a company with normal profits has a standard comparative advantage because the market price is equal to the opportunity cost.
A firm with lower-than-average costs can obtain extraordinary profits and a greater comparative advantage since the market price is higher than its opportunity cost. The purpose of this research paper is to provide a critical analysis of microeconomics. Section II includes a review of the core microeconomics assumptions. Section III discusses total costs and production. Then in Section IV, the concepts of average and marginal costs are examined.
Section V will analyze the rate of profits, prices, marginal cost, and marginal revenue, which will extend into Section VI. Lastly, following the conclusions, a list of references can be found. Microeconomics usually begins by analyzing firms in terms of their production function.
In fact Based on the allocation of resources, it is presumed that there is a range of production functions between fixed and variable proportions Samuelson, ; Ferguson, ; Varian. According to these authors, production function is a matter of technical relationships established for production engineering.
Production functions are complex since they involve a combination of inputs in the production of goods, services, and different kinds of products.
Key aspects of the theory of production are diminishing marginal product and the variable proportion of resources, which microeconomics gives character of law. This law describes that there is an increase in use intensity of fixed resources as variable ones are added. Technical resource composition could reflect a relative decrease in the production level of employees, called marginal product of labor or diminishing average product of work.
Diminishing marginal product refers to the physical relationship between the amount of output and use intensity of fixed resources. Fixed resources enter into the production process only one time and remain there according to use intensity during its useful life. The technical, efficient combination of resources does not change despite increasing or decreasing variable resources.
Change in variable resources is necessary to achieve an efficient allocation of fixed resources. A fixed resource has variable uses, making it possible to increase or decrease the use of other complementary and variable resources.
Furthermore, a technical relationship of resources is a combination of resource value at market prices. If production increases or decreases, ceteris paribus, the value of combined resources could also increase or decrease due to varying prices. A technical combination of resources is stable, but a combined resource value is variable. A fixed resource has unstable cost during its useful life, as its original cost will reduce according to the use intensity.
Therefore, the fixed cost concept could vary in relation to the use intensity criterion. Therefore, the short-run definition must consider the fact that, in that period, the cost of fixed resources will decline as production increases.
Producers are concerned for both technical and value combinations of resources. The average total cost of production fluctuates about regarding increases or decreases in the use of variable resources, given the use intensity of fixed resources. The greater the use intensity of fixed resources, the greater the use of variable resources and the lower the coefficient of resources value combination j will be. In microeconomics, average fixed cost is the result of dividing total fixed cost value by quantity of output that a fixed resource helps generate.
However, the fixed cost in any given moment of production is just a fraction of the value of fixed resources during their useful life. At any given time, only a small portion of the fixed resource value is transferred to the total product, and therefore only this portion enters into the computation of average fixed costs. Therefore, marginal cost refers to changes in the total cost of resources that arises from one extra unit of production.
Fixed costs could be represented by property taxes, interest rates, leases, and implicit overhead costs.
Nevertheless, it is common in economics to refer to the stock of fixed resources, which could include tangible and intangible. Then, supposing fixed resources as fixed value in the short-run is only fiction. We define a fixed resource as any resource that a firm must acquire to be used for long periods of production. Long-term is a more extended period of production, containing many short-runs.
Microeconomics assumes that the optimal level of production of a firm corresponds to the lowest-average, long-term total cost or equal marginal cost Mankiw, Demand increase could raise profits if average costs are reduced and the scale of the plant is expanded. Demand intensity and competition could prevent a firm from investing in a new plant or expanding the current one due to the possibility of obtaining normal or abnormal profits.
The demand for a product determines the quantity of that product a firm could sell, ceteris paribus, at market price bearing in mind the competition Marshall, In a competitive market, firms do not choose the price at which they sell their products; instead, they must face the market price at which they could sell the product Marshall, Hayek first denied the influence of levels of prices on levels of production, but then he revised his position by considering the rate of profit Hayek, Microeconomics defines total cost as the sum of fixed and variable costs.
Resources of administration could be considered a special form of , such as management, furniture, stationery, logistics, intangible factors, among other fixed resources that affect the value combination of resources. In general, the technology will permit every level of output to be produce by a variety of input vectors, and all such possibilities can be summarized by the level sets of the function production.
The firm must decide, therefore, which of the possible production plans it will use. Every resource has an optimal technical level of combination determined by technology.
By reorganizing equation 6 in relation to T , we obtain. In equation 8 , C is an added value of productive resources and its contribution is expressed at a level of q in accordance with a technical combination of values for a particular production process. This technical combination is set as an efficient and optimal physical fraction per unit of q. Value combination is given by the physical relationship and respective ratios of prices for resources.
Let j be a ratio of value for fixed and circulating resources with respect to the value of human resources; furthermore, it expresses the intensity of resource value in the production process and can be expressed by equation 8 as. The influence of j on C is determined by reformulating equation 9 as. Equation 11 simplifies the expression of cost of production in terms of coefficients of resource combination at market value. Therefore, total costs are not just a simple sum of fixed and variable costs at each q- level.
By solving for q in equation 11 , the average cost c is obtained as follows:. Equation 12 denotes that c is not a simple sum of average variable cost and average fixed cost. If q is rising, c tends to drop when j accelerates its fall, but it rises when j falls slowly and approaches the q - maximum. Thus, q i indicates different q -levels for each c i.
The resulting equation can now be expressed as. As a result,. By operationalizing equation 20 in term of q , we obtain. The first term on the right side of equation 21 is c as defined in equation 12 ; therefore, by simplifying, we can substitute it, resulting in.
Therefore, we can substitute it and obtain. Average income I me is defined as. In equation 22 , I can be represented in general terms as.
From which follows. Anything above this range could shrink the average profit.
PDF Macroeconomics - 18th (Eighteenth) Edition by Samuelson and Nordhaus Ebook Online
The first American to win the Nobel Memorial Prize in Economic Sciences , the Swedish Royal Academies stated, when awarding the prize in , that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory". Parker has called him the "Father of Modern Economics ",  and The New York Times considered him to be the "foremost academic economist of the 20th century". Samuelson was likely the most influential economist of the later 20th century. He entered the University of Chicago at age 16, during the depths of the Great Depression , and received his PhD in economics from Harvard. After graduating, he became an assistant professor of economics at Massachusetts Institute of Technology MIT when he was 25 years of age and a full professor at age
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