Chat with us, powered by LiveChat See attached 2 worksheets for completion in addition to the question below. Document needs to be in word format.? Question: ? 200 words minimum? Identify a time when you saw a price that wa | WriteDen

See attached 2 worksheets for completion in addition to the question below. Document needs to be in word format.? Question: ? 200 words minimum? Identify a time when you saw a price that wa

See attached 2 worksheets for completion in addition to the question below. Document needs to be in word format. 

Question:  

200 words minimum 

Identify a time when you saw a price that was “too good to be true.” Using the economic theory you learned in this unit, justify why the firm set the price below its average total cost of production. 

ECO 2301, Principles of Microeconomics 1

Course Learning Outcomes for Unit IV Upon completion of this unit, students should be able to:

4. Explain factors that influence decision-making by consumers and producers. 4.1 Identify the relationships between the total product, average product, and marginal product. 4.2 Identify the relationships between total value product, average value product, and marginal

value product. 4.3 Identify the optimal amount of variable input to use.

Course/Unit Learning Outcomes

Learning Activity

4.1

Unit Lesson Chapter 7, pp. 104–109 Webpage: The Economic Benefits and Impacts of Expanded Infrastructure

Investment Article: “Applying Economic Principles to Health Care” Unit IV Assignment

4.2 Unit Lesson Chapter 7, pp. 104–109 Unit IV Assignment

4.3

Unit Lesson Chapter 7, pp. 104–109 Webpage: The Economic Benefits and Impacts of Expanded Infrastructure

Investment Article: “Applying Economic Principles to Health Care” Unit IV Assignment

Required Unit Resources Chapter 7: Production and Cost in the Firm, pp. 104–109

• Sections 7.1–7.2 In order to access the following resources, click the links below. Council of Economic Advisors. (2018, March). The economic benefits and impacts of expanded infrastructure

investment. Executive Office of the President of the United States. https://www.whitehouse.gov/wp- content/uploads/2018/03/The-Economic-Benefits-and-Impacts-of-Expanded-Infrastructure- Investment.pdf

Scott, R. D., Solomon, S. L., & McGowan, J. E. (2001, April). Applying economic principles to health care.

Emerging Infectious Diseases, 7(2), 282–285. https://wwwnc.cdc.gov/eid/article/7/2/70-0282_article

Unit Lesson How do firms operate? This is a classic question in economics. Firms make decisions on a daily basis that alter production. For example, a nursery may decide to increase the amount of fertilizer on its plants to help them grow faster. At the same time, the nursery may decide to build a new greenhouse so it can increase the total number of plants it has for sale.

UNIT IV STUDY GUIDE

Production in the Firm

ECO 2301, Principles of Microeconomics 2

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Title

All of these decisions influence the quantity as well as the quality of products the nursery has to sell. However, not all decisions are the same. For example, fertilizer being added to plants can result in an almost immediate increase in the health of the plants for sale. Because the decision to add fertilizer to the plants is a change that can take place rather quickly, it is called a variable resource (McEachern, 2019). However, choosing to build a new greenhouse takes time to complete. That means the size of the firm with existing greenhouses would be considered to be a fixed resource (McEachern, 2019). When all the resources a firm has at its disposal are used correctly, profits can result. However, when resources are used incorrectly, firms may experience lower profits or even negative profits. Therefore, economists are extremely interested in analyzing the appropriate use of all resources.

Analyzing the Impact of Changes in One Variable Resource on Output You have already learned that economists make assumptions when they analyze anything. The same holds true when economists are attempting to analyze the appropriate amount of inputs to use. For example, a firm may be in the business of making wooden chairs. The firm rents a building where the chairs are made. The firm has machinery that is used to cut and shape wood, drill screws, stain the wood, and so on. These would be examples of fixed resources. The firm also has variable resources that it uses to make the chairs, such as labor, screws, stain, wood, and utilities such as water and electricity. When deciding the optimal amount of one individual resource to use, economists know that the fixed resources do not change in the short run. Economists will also hold all the variable resources constant except for one. Only allowing one variable resource to change will give economists the ability to determine the optimal amount of that one resource to use. As an example of determining the optimal amount of one variable resource to use, let’s assume that the firm that makes chairs only allows the amount of labor to change. Obviously, as the amount of labor changes, the total number of chairs that are produced will change. Below is a table that shows the total number of chairs that are made per day, known as total product, as the amount of labor changes from 0 to 10 (McEachern, 2019).

Number of Workers per

Day

Total Chairs Produced per Day

(Total Product – TP)

0 0

1 10

2 30

3 70

4 100

5 120

6 130

7 135

8 137

9 137

10 135

What we may first notice about this table is that when no workers are used, no chairs get produced. As the firm adds more workers, total product (the total number of chairs produced) starts increasing. Eventually, the maximum total product that can be produced by the firm in a day is reached at 137 chairs when 8 workers per day are used. Once the 10th worker is employed, total product actually starts decreasing. A graph of the total product of this firm is presented below with total product (chairs per day) on the vertical axis and workers per day on the horizontal axis.

ECO 2301, Principles of Microeconomics 3

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As you might have already guessed, there are other ways that economists can analyze this data for producing chairs. First, economists can examine the Average Product, which is simply calculated by dividing the total product by the amount of variable input used, as shown below.

Average Product = Total Product

Amount of Variable Input Used A shorter way to write this formula is

AP = TP

X

where AP stands for average product, TP represents total product, and X represents the amount of variable input used.

For example, when two workers were used in a day, they could produce a total of 30 chairs. That would mean the average product (AP) would be 15 chairs (30 chairs total product divided by 2 workers). When 4 workers were used in a day, 100 chairs were produced. Now, the AP would be 25 (100 chairs total product divided by 4 workers). Calculating the AP for number of workers from 0 to 10 produces the following results:

Number of Workers per

Day

Total Chairs Produced per Day

(Total Product – TP)

Average Product

(AP)

0 0 —

1 10 10.00

2 30 15.00

3 70 23.33

4 100 25.00

5 120 24.00

6 130 21.67

7 135 19.29

8 137 17.13

9 137 15.22

10 135 13.50

ECO 2301, Principles of Microeconomics 4

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You have also learned that economists are interested in marginal analysis. Remember, the term marginal in economics simply means change. When analyzing the data, economists will want to calculate the marginal product. Marginal product refers to the change in total product as the variable input changes (McEachern, 2019).

Marginal Product (MP) = Change in Total Product

Change in Variable Input Used Another way to write this formula is

MP = (TP2 – TP1)

(X2 – X1)

where MP represents marginal product, TP2 represents total product in the second time period, TP1 represents total product in the first time period, X2 represents the amount of variable input used in the second time period, and X1 represents the amount of variable input used in the first time period.

Let’s look at an example that should help make this calculation clearer. When 2 workers were used in a day, total product (TP) equaled 30 chairs. When 3 workers were used in a day, the TP equaled 70 chairs. Using the formula above, 70 chairs would represent TP2, 30 chairs would equal TP1, 3 workers would represent X2, and 2 workers would represent X1. Now, all we have to do is plug these numbers into the formula and solve. The example below shows you how this is done.

MP = (TP2 – TP1)

(X2 – X1)

MP =

(70 – 30) (Step 1)

(3 – 2)

MP =

40 (Step 2) 1

MP = 40 (Step 3)

What this calculation tells us is that the marginal product for using 3 workers per day versus 2 workers equals 40 chairs. Calculating the marginal product for number of workers from 0 to 10 yields the following:

Number of Workers per Day

Total Chairs Produced per Day

(Total Product – TP)

Average Product

(AP)

Marginal Product

(MP)

0 0 — —

1 10 10.00 10

2 30 15.00 20

3 70 23.33 40

4 100 25.00 30

5 120 24.00 20

6 130 21.67 10

7 135 19.29 5

8 137 17.13 2

9 137 15.22 0

10 135 13.50 -2

ECO 2301, Principles of Microeconomics 5

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A graph of the average product and marginal product for our example would produce the following:

When the graphs for total product, average product, and marginal product are compared, we notice some interesting features. When total product starts increasing, it increases at a very fast pace. In other words, the production of chairs increases rapidly as we add more and more workers. The same holds true for average product and marginal product. However, we do reach a point where total product stops increasing at such a fast pace. At this point, the total number of chairs is still increasing as more workers are added. However, the total production of chairs is not increasing as fast as before. The point where total product stops increasing at a very fast pace and starts increasing at a slower and slower pace is the point where marginal product reaches its maximum point. Economists suggest that after reaching the maximum of marginal product, the law of diminishing marginal productivity has started. This law suggests that increasing the variable input will result in total product growing at a slower and slower rate of increase (McEachern, 2019). Again, it is important to note that increasing the variable input after reaching this point will still result in increases in total product for a period of time. However, the rate that total product increases becomes less and less. In the example of the firm producing chairs, the law of diminishing marginal productivity starts when the fifth worker has been added. Average product will reach its maximum point after marginal product has reached its maximum. When average product reaches its maximum, it simply tells us that the average output per worker is starting to decrease. After reaching its maximum, average product will slowly start to decrease, but it will never become zero. Eventually, the firm can add so much of the variable input that total product actually starts to decrease. For example, so many workers may be added that they get in each other’s way and total output starts to decrease. In our example, maximum total product is reached when the eighth worker is added, and it is repeated with the ninth worker. Here, total product has reached its maximum point of 137 chairs per day. If a 10th worker were added, total product would actually fall to 135 chairs. However, also notice what has happened to marginal product at this point. Marginal product reaches zero when total product reaches its maximum level. We see this with the addition of worker number 9, when the total product remains at its maximum point of 137 chairs per day, but the marginal product drops to 0.

ECO 2301, Principles of Microeconomics 6

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Determining the Impact of Variable Resources on the Value of Output

Now that we have seen how changing one variable resource can impact total product, determining the optimal number of that variable resource to use becomes a question for many firms. We start this analysis by determining the total value of the output that is being produced. The total value product (TVP) is determined by multiplying the total product by the price of the output.

Total Value Product = Total Product x Price

In our example, we have various numbers of chairs that can be produced. Let’s assume the price of each chair is $20.00. To calculate the total value product (TVP) for producing 10 chairs, we would simply multiply 10 chairs by $20.00. That would mean the total value product for producing 10 chairs would be $200.00. Similarly, the total value product for producing 30 chairs would be $600.00 (30 chairs multiplied by $20.00). The price per chair and the calculated total value product over the range of potential chairs that could be produced by the firm with a range of 0 to 10 workers is added to our table below.

ECO 2301, Principles of Microeconomics 7

UNIT x STUDY GUIDE

Title

Number of Workers per

Day

Total Chairs Produced per Day

(Total Product – TP)

Average Product

(AP)

Marginal Product

(MP)

Price per

Chair

Total Value Product

(TVP)

0 0 — — $20 $0

1 10 10.00 10 $20 $200

2 30 15.00 20 $20 $600

3 70 23.33 40 $20 $1,400

4 100 25.00 30 $20 $2,000

5 120 24.00 20 $20 $2,400

6 130 21.67 10 $20 $2,600

7 135 19.29 5 $20 $2,700

8 137 17.13 2 $20 $2,740

9 137 15.22 0 $20 $2,740

10 135 13.50 -2 $20 $2,700

As you might have already guessed, we can also calculate average value product (AVP) by multiplying average product by the price of the output.

Average Value Product = Average Product x Price

The calculated average value product for our example has been added to the table below.

Number of

Workers per Day

Total Chairs Produced per Day

(Total Product – TP)

Average Product

(AP)

Marginal Product

(MP)

Price per

Chair

Total Value Product

(TVP)

Average Value

Product (AVP)

0 0 — — $20 $0 —

1 10 10.00 10 $20 $200 $200

2 30 15.00 20 $20 $600 $300

3 70 20.00 40 $20 $1,400 $467

4 100 25.00 30 $20 $2,000 $500

5 120 24.00 20 $20 $2,400 $480

6 130 21.67 10 $20 $2,600 $433

7 135 19.29 5 $20 $2,700 $386

8 137 17.13 2 $20 $2,740 $343

9 137 15.22 0 $20 $2,740 $304

10 135 13.50 -2 $20 $2,700 $270

Finally, marginal value product (MVP) represents the change in total product per unit of output. Marginal value is calculated by multiplying marginal product by the output price.

Marginal Value Product = Marginal Product x Price

In our example, we would multiply the marginal product at each level of output by the price per chair. The calculated marginal value product has been added to the table below, which is now growing quite large.

ECO 2301, Principles of Microeconomics 8

UNIT x STUDY GUIDE

Title

Number of

Workers per Day

Total Chairs Produced per Day

(Total Product – TP)

Average Product

(AP)

Marginal Product

(MP)

Price per

Chair

Total Value

Product (TVP)

Average Value

Product (AVP)

Marginal Value

Product (MVP)

0 0 — — $20 $0 — —

1 10 10.00 10 $20 $200 $200 $200

2 30 15.00 20 $20 $600 $300 $400

3 70 23.33 40 $20 $1,400 $467 $800

4 100 25.00 30 $20 $2,000 $500 $600

5 120 24.00 20 $20 $2,400 $480 $400

6 130 21.67 10 $20 $2,600 $433 $200

7 135 19.29 5 $20 $2,700 $386 $100

8 137 17.13 2 $20 $2,740 $343 $40

9 137 15.22 0 $20 $2,740 $304 $0

10 135 13.50 -2 $20 $2,700 $270 -$40

The shape of the total value product curve will be identical to the shape of the total product curve because we are simply multiplying the total product by a constant price when we calculate total value product. Likewise, the shape of the average value product will be identical to that of the average product, and the marginal value product’s shape will be identical to that of the marginal product. When marginal product reaches its maximum point, the diminishing returns start. When marginal value product reaches its maximum point, diminishing marginal returns begin. As with marginal product, total value continues to increase after reaching the point where diminishing marginal returns begin. The difference is that before reaching the maximum marginal value product, total product was increasing at a rapid pace. After reaching the point where marginal value product is maximum, marginal returns start increasing at a slower and slower rate.

Optimal Amount of the Variable Resource to Use The last step we have to complete is to determine the total number of the variable resources to use. To determine this optimal level, we only need one other piece of information—the price per unit of the variable resource per unit. Finding the level of input that corresponds to the point where marginal value product is equal to the price of the input per unit will tell us the optimal number of variable resources to use. In our example, we need to know the price per day for workers. If we find the point where marginal value product is equal to the price per worker per day, we will know the most efficient number of workers to use per day. The table below includes the price per worker per day and identifies this optimal number of workers to use when making chairs.

Number of

Workers per Day

Total Chairs Produced per Day (Total

Product – TP)

Average Product

(AP)

Marginal Product

(MP)

Price per

Chair

Total Value

Product (TVP)

Average Value

Product (AVP)

Marginal Value

Product (MVP)

Price per

Worker per Day

0 0 — — $20 $0 — — $100

1 10 10.00 10 $20 $200 $200 $200 $100

2 30 15.00 20 $20 $600 $300 $400 $100

3 70 23.33 40 $20 $1,400 $467 $800 $100

4 100 25.00 30 $20 $2,000 $500 $600 $100

5 120 24.00 20 $20 $2,400 $480 $400 $100

6 130 21.67 10 $20 $2,600 $433 $200 $100

7 135 19.29 5 $20 $2,700 $386 $100 $100

8 137 17.13 2 $20 $2,740 $343 $40 $100

9 137 15.22 0 $20 $2,740 $304 $0 $100

10 135 13.50 -2 $20 $2,700 $270 -$40 $100

ECO 2301, Principles of Microeconomics 9

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With the price per worker being $100 per day, the firm knows it should use seven workers per day and produce 135 chairs per day. The firm knows this because the price per worker per day ($100) is equal to the marginal value product ($100) when seven workers are used and 135 chairs are produced per day. These tables tend to get large when including all the information required to make a decision. Also, the calculations can seem to be cumbersome. However, all the information provided is vital to a firm that wants to operate efficiently. One small mistake (for example employing six workers instead of seven workers per day in our example) will create a situation where the variable resource is not used efficiently, which can lead to lower profits or even losses.

Reference McEachern, W. A. (2019). Micro ECON6: Principles of microeconomics. Cengage Learning.

https://online.vitalsource.com/#/books/9781337671828

  • Course Learning Outcomes for Unit IV
  • Required Unit Resources
  • Unit Lesson
    • Analyzing the Impact of Changes in One Variable Resource on Output
    • Determining the Impact of Variable Resources on the Value of Output
    • Optimal Amount of the Variable Resource to Use
    • Reference

,

ECO 2301, Principles of Microeconomics 1

Course Learning Outcomes for Unit V Upon completion of this unit, students should be able to:

5. Recall the theories of economic regulation. 5.1 Identify the relationship between total cost and marginal cost. 5.2 Identify the profit maximizing amount of output to produce when given short-run total and

marginal cost. 5.3 Identify the point at which the firm should shut down in the short run.

Course/Unit Learning Outcomes

Learning Activity

5.1

Unit Lesson Chapter 7, pp. 109–119 Article: “Relating Product Prices to Long-Run Marginal Cost: Evidence From

Solar Photovoltaic Modules” Unit V Assignment

5.2

Unit Lesson Chapter 7, pp. 109–119 Article: “Relating Product Prices to Long-Run Marginal Cost: Evidence From

Solar Photovoltaic Modules” Unit V Assignment

5.3 Unit Lesson Chapter 7, pp. 109–119 Unit V Assignment

Required Unit Resources Chapter 7: Production and Cost in the Firm, pp. 109–119 In order to access the following resource, click the link below. Reichelstein, S., & Sahoo, A. (2018, September). Relating product prices to long-run marginal cost: Evidence

from solar photovoltaic modules. Contemporary Accounting Research, 35(3). https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=bsu&AN=131948842&site=ehost-live&scope=site

Unit Lesson Why are firms in business? Some firms are in operation to fulfill a dream of the owner. Some businesses are in operation to improve society. Regardless of the motivation, business operations can be summarized as consisting of people, products, and profits (Iacocca, 1984). Without profits, even the most relevant business cannot be sustainable. Profits of a firm are relatively easy to define. Profits represent the amount of sales revenues that are greater than resource costs (McEachern, 2019). This means profits are determined by subtracting a firm’s costs from its revenues. The output level that produces the highest profits is the optimal output level for the firm. However, there are many facets associated with analyzing a firm’s revenue and costs that are important to understand. In this unit, we will explore how economists analyze revenue and costs and help firms make decisions.

UNIT V STUDY GUIDE

Costs in the Firm

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UNIT x STUDY GUIDE

Title

Costs in the Short Run In the short run, there are two different types of costs: fixed and variable. Fixed costs (FC) represent any production expense that is not related to the firm’s rate of output (McEachern, 2019). In other words, the firm will have to pay these costs regardless of whether they produce any product or not. For example, a firm that makes chairs will have a building and machinery/equipment that may be rented or purchased. The firm will have to pay insurance for that building and machinery/equipment. These expenses will be paid by the firm if the firm makes one million chairs per month or no chairs at all. Variable cost (VC) is the cost of variable resources. Variable cost increases or decreases as the rate of output changes (McEachern, 2019). For example, the firm that makes chairs will have to purchase supplies (wood, screws, labor, and so on) to make the chairs. If no chairs are produced, there will be no need for these supplies. This means that the variable cost would equal zero if no chairs were produced. As the number of chairs that are produced increases, more supplies will be required. This suggests that variable cost will increase as the number of chairs produced each month increases. Variable cost is determined by the price per unit of the variable resource(s) multiplied by the total number of the variable resource(s) used in production.

Unit Price of Total Number of Variable Cost (VC) = Variable x Variable Resources

Resources The total cost (TC) of production associated with production is determined by adding the fixed costs and variable cost. The total cost of production will never equal zero because fixed costs will never equal zero. As output (q) increases, total cost will increase because more variable resources are being used.

Total Cost (TC) = Fixed Costs + Variable Costs Total Cost Will Never Equal 0 (TC ≠ 0)

Calculating Profits Using Total Cost and Revenue

Using the example from Unit IV, assume that the only variable resource for the firm producing chairs is labor. The firm can employ between zero and 10 wo

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