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Producer Theory and Imperfect Competition
Essay Instructions:
Please write a 10-15 page paper that teaches the course material back to me. ( forces on chapter 6-11 ) (chapter 6.7.8 is PRODUCER THEORY, chapter 9.10.11 is IMperfect competition) (but also shows how it relates to the previous chapter )Emphasis should be placed on the material after the 1st paper. Note: turnitin produces an automatic plagiarism report. Please ensure that you are not using the same phrases as the text and/or notes, since if Turnitin finds evidence of similar phrasing you will receive a 0 on the paper. Late submissions will not be accepted for a grade this semester.
Make sure you use your own example!!!!!!!!!! examples can be slimile but numbers cant is the same. I will post midterm paper, because midterm paper is also writing about teach me back, but it is about Chapters 4 and 5
(Paper on Consumer Theory midtern paper
Hi all- The purpose of this assignment is for you to 'teach back to me' the material from Chapters 4 and 5 in detail. You should rely primarily on the lectures and also use the reading and demonstrate how the math review is relevant to the later material. You should provide specific examples to demonstrate your understanding. You should be able to demonstrate your mastery within 10 pages. There is no need for outside sources and the quality of the writing is secondary to demonstrated understanding of the material in your grade calculation. Do not share your work with others. Turnitin performs a plagiarism check, and if your paper is found to be plagiarized you will receive a zero on the assignment.)
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Student’s Name
Professor’s Name
Course
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Producer Theory and Imperfect Competition
Microeconomics does not just evaluate the choices made by consumers but also those made by producers. Producers in the market do not make rapid decisions on whether to engage in production, the quantity to produce, and the input variable to change in the bid of maximizing producers’ output. Moreover, producers have to consider factors such as costs, competition, and pricing strategy to gain adequate market power to establish market dominance in producing particular goods or services. For example, a company such as Coca-Cola cannot randomly decide to produce their beverage without considering market factors such as costs, having a pricing strategy, and understanding the dynamics of supply in the competitive beverage market. This paper will focus on analyzing the microeconomics of producers relating to factors such as producer behavior, costs factor in the market, supply dynamics in a competitive market, market power, and producers’ pricing strategies.
Producer Behavior
Before delving into understanding produce behavior, it is important to understand the definition of the production process. Production simply refers to the process inputs are utilized to create goods or services that participants in the market (buyers) are willing to buy. Production can be done by an individual, company, non-profit organization, or even government. For this paper firms or companies will be used as the producer. The microeconomics theory of producer behavior makes several assumptions. The main assumption made is that firms aim at maximizing profit by minimizing all costs linked to production. There are also the assumptions that a company has decided on what to produce and only concentrates on the production of a single good or service. Producer behavior is only understood by assuming that only capital and labor matter in the production process.
The aforementioned assumptions set the basis for understanding producer behavior through mathematical function or a production function. The function establishes a correlation between the inputs invested by the producer and the yields or output obtained from the investment. Mathematically, the function is expressed as Q = f (K, L) where Q represents the output quantity and K and L represents capital invested and labor respectively. Cobb-Douglas production function which is expressed as Q = KαLβ with α and β being constants is the most popular form of a production function. The production function is especially important when considering the timeframe of a firm concerning production. With this regard, the short-run pertains to the period where one or more inputs of production cannot be varied while the long-run refers to the period where all inputs of production can be adjusted. For instance, many firms consider the short run as the period when capital is fixed and only labor can be varied. In such a scenario the production function is expressed as Q = f (K̅, L) where K̅ represents a constant value of capital. In the long run, a firm has the luxury of varying both variables of production. This gives a company an advantage in dealing with diminishing marginal products of labor through varying the capital utilized during a particular period. Unlike in the short-run scenario where only labor is adjustable, long-run cases provide a company with the advantage of varying both labor and capital, and thus it is easy to substitute one factor for another.
Firms’ production behavior is mostly guided by the assumption that producers aim at minimizing the cost of production. The cost minimization models for any firm are guided by isoquants and isocost concepts. Isoquant refers to the combination of inputs that helps a company to meet a particular output quantity. The following figure (i) shows three isoquants resulting from different outputs. The isoquants slopes in the figure show how inputs can be substituted to produce different outputs. If the isoquants represent a firm
-57150-238125Labor (L)Output, Q =2Output, Q = 4Output, Q = 6 Capital (K)Labor (L)Output, Q =2Output, Q = 4Output, Q = 6 Capital (K)
Figure (i): Isoquants
Isocost, on the other hand, refers to the line connecting all the correlations between capital and labor which a company can purchase for particular expense on production inputs. Cost-minimization output takes place when the isocost line is a tangent to the isoquant curve.
Costs
Cost is an important aspect in informing producer behavior. The definition of the cost may vary depending on the context of a discussion. For instance, in the accounting context, the cost is perceived as the direct operating cost of a business which ranges from various aspects of business operations including paying employees and purchasing raw materials. This is different to cost in an economic context which considers both accounting and the opportunity cost. Opportunity cost regards the value a producer foregoes by choosing a particular input. Opportunity costs are among the many economic costs that matter in the production process. For example, if a company requires production machinery and transport vehicles and has only $50000 to spend, a decision to buy the machinery makes the producer give up the opportunity to purchase transport vehicles. When companies decide on what inputs to prioritize in the production process, they always consider the opportunity cost.
Fixed cost is another economic cost that influences the behavior of producers. Fixed costs refer to the costs that are not influenced by changes in output. These costs remain fixed regardless of the output. Firms cannot avoid fixed costs even if production has a zero value. The only way to avoid fixed costs is through closing the company and complete disposal of all inputs. For example, consider a firm that has leased office space for $400 monthly. This $400 is a fixed cost for the business and must be paid regardless of the output of the company. The lease cost can disappear if the firm decided to end operation However, there are fixed costs that cannot be recovered no matter what. These are referred to as sunk costs and are never considered in producers’ decision-making. An example of sunk cost is license permit payment which is unavoidable so long as a firm operates with a jurisdiction that has implemented a policy for paying business permits. All producers should avoid sunk cost fallacy where firms’ operating decisions are affected by sunk costs.
Analysis of costs in production is done by categorizing operating costs into two; fixed costs (FC) and variable cost (VC) which varies with regards to the company’s output. The sum of these two costs is what defines total cost (TC) in economic analysis. Total cost is mathematically expressed in the equation TC = FC + VC. In economic analysis, costs curves are utilized in representing this relationship in a graph. Graph (ii) below shows a representation of all the three costs in a graph. As evidenced in the graph, the fixed cost curve is a horizontal line since it does not vary regardless of output. Variable and total cost curves, on the other hand, are positive slopes that become steeper as the number of produced units increases. Since total costs entail the fixed costs, the TC curve is shifted up.
Graph (ii): Graphical representation of TC, FC, and VC.
Economic analysis of costs is also informed by the average and marginal costs. The former refers to the ratio of cost to the output while the latter describes the additional cost required to make an extra unit of output. Mathematically, average costs are expressed as the quotient of cost and output. As such, average fixed cost (AFC) = FC/Q, Average variable cost (AVC) = VC/Q, and average total cost (ATC) = TC/Q. On the other hand, marginal cost (MC) is expressed mathematically as MC = ∆TC / ∆Q. in the relationship between average and marginal costs, MC is only affected by ∆VC since there is no change in fixed cost. As such, MC is mathematical expressed as MC = ∆VC / ∆Q (= ∆VC / ∆Q). These relationships can be represented graphically using average cost curves and marginal cost curves as in graph (iii) below. In this correlation, it is important to note that MC usually crosses AVC and ATV c...
Professor’s Name
Course
Submission Date
Producer Theory and Imperfect Competition
Microeconomics does not just evaluate the choices made by consumers but also those made by producers. Producers in the market do not make rapid decisions on whether to engage in production, the quantity to produce, and the input variable to change in the bid of maximizing producers’ output. Moreover, producers have to consider factors such as costs, competition, and pricing strategy to gain adequate market power to establish market dominance in producing particular goods or services. For example, a company such as Coca-Cola cannot randomly decide to produce their beverage without considering market factors such as costs, having a pricing strategy, and understanding the dynamics of supply in the competitive beverage market. This paper will focus on analyzing the microeconomics of producers relating to factors such as producer behavior, costs factor in the market, supply dynamics in a competitive market, market power, and producers’ pricing strategies.
Producer Behavior
Before delving into understanding produce behavior, it is important to understand the definition of the production process. Production simply refers to the process inputs are utilized to create goods or services that participants in the market (buyers) are willing to buy. Production can be done by an individual, company, non-profit organization, or even government. For this paper firms or companies will be used as the producer. The microeconomics theory of producer behavior makes several assumptions. The main assumption made is that firms aim at maximizing profit by minimizing all costs linked to production. There are also the assumptions that a company has decided on what to produce and only concentrates on the production of a single good or service. Producer behavior is only understood by assuming that only capital and labor matter in the production process.
The aforementioned assumptions set the basis for understanding producer behavior through mathematical function or a production function. The function establishes a correlation between the inputs invested by the producer and the yields or output obtained from the investment. Mathematically, the function is expressed as Q = f (K, L) where Q represents the output quantity and K and L represents capital invested and labor respectively. Cobb-Douglas production function which is expressed as Q = KαLβ with α and β being constants is the most popular form of a production function. The production function is especially important when considering the timeframe of a firm concerning production. With this regard, the short-run pertains to the period where one or more inputs of production cannot be varied while the long-run refers to the period where all inputs of production can be adjusted. For instance, many firms consider the short run as the period when capital is fixed and only labor can be varied. In such a scenario the production function is expressed as Q = f (K̅, L) where K̅ represents a constant value of capital. In the long run, a firm has the luxury of varying both variables of production. This gives a company an advantage in dealing with diminishing marginal products of labor through varying the capital utilized during a particular period. Unlike in the short-run scenario where only labor is adjustable, long-run cases provide a company with the advantage of varying both labor and capital, and thus it is easy to substitute one factor for another.
Firms’ production behavior is mostly guided by the assumption that producers aim at minimizing the cost of production. The cost minimization models for any firm are guided by isoquants and isocost concepts. Isoquant refers to the combination of inputs that helps a company to meet a particular output quantity. The following figure (i) shows three isoquants resulting from different outputs. The isoquants slopes in the figure show how inputs can be substituted to produce different outputs. If the isoquants represent a firm
-57150-238125Labor (L)Output, Q =2Output, Q = 4Output, Q = 6 Capital (K)Labor (L)Output, Q =2Output, Q = 4Output, Q = 6 Capital (K)
Figure (i): Isoquants
Isocost, on the other hand, refers to the line connecting all the correlations between capital and labor which a company can purchase for particular expense on production inputs. Cost-minimization output takes place when the isocost line is a tangent to the isoquant curve.
Costs
Cost is an important aspect in informing producer behavior. The definition of the cost may vary depending on the context of a discussion. For instance, in the accounting context, the cost is perceived as the direct operating cost of a business which ranges from various aspects of business operations including paying employees and purchasing raw materials. This is different to cost in an economic context which considers both accounting and the opportunity cost. Opportunity cost regards the value a producer foregoes by choosing a particular input. Opportunity costs are among the many economic costs that matter in the production process. For example, if a company requires production machinery and transport vehicles and has only $50000 to spend, a decision to buy the machinery makes the producer give up the opportunity to purchase transport vehicles. When companies decide on what inputs to prioritize in the production process, they always consider the opportunity cost.
Fixed cost is another economic cost that influences the behavior of producers. Fixed costs refer to the costs that are not influenced by changes in output. These costs remain fixed regardless of the output. Firms cannot avoid fixed costs even if production has a zero value. The only way to avoid fixed costs is through closing the company and complete disposal of all inputs. For example, consider a firm that has leased office space for $400 monthly. This $400 is a fixed cost for the business and must be paid regardless of the output of the company. The lease cost can disappear if the firm decided to end operation However, there are fixed costs that cannot be recovered no matter what. These are referred to as sunk costs and are never considered in producers’ decision-making. An example of sunk cost is license permit payment which is unavoidable so long as a firm operates with a jurisdiction that has implemented a policy for paying business permits. All producers should avoid sunk cost fallacy where firms’ operating decisions are affected by sunk costs.
Analysis of costs in production is done by categorizing operating costs into two; fixed costs (FC) and variable cost (VC) which varies with regards to the company’s output. The sum of these two costs is what defines total cost (TC) in economic analysis. Total cost is mathematically expressed in the equation TC = FC + VC. In economic analysis, costs curves are utilized in representing this relationship in a graph. Graph (ii) below shows a representation of all the three costs in a graph. As evidenced in the graph, the fixed cost curve is a horizontal line since it does not vary regardless of output. Variable and total cost curves, on the other hand, are positive slopes that become steeper as the number of produced units increases. Since total costs entail the fixed costs, the TC curve is shifted up.
Graph (ii): Graphical representation of TC, FC, and VC.
Economic analysis of costs is also informed by the average and marginal costs. The former refers to the ratio of cost to the output while the latter describes the additional cost required to make an extra unit of output. Mathematically, average costs are expressed as the quotient of cost and output. As such, average fixed cost (AFC) = FC/Q, Average variable cost (AVC) = VC/Q, and average total cost (ATC) = TC/Q. On the other hand, marginal cost (MC) is expressed mathematically as MC = ∆TC / ∆Q. in the relationship between average and marginal costs, MC is only affected by ∆VC since there is no change in fixed cost. As such, MC is mathematical expressed as MC = ∆VC / ∆Q (= ∆VC / ∆Q). These relationships can be represented graphically using average cost curves and marginal cost curves as in graph (iii) below. In this correlation, it is important to note that MC usually crosses AVC and ATV c...
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