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Explain how profits and losses affect where resources will be used....

Question

Explain how profits and losses affect where resources will be used.

Explain how profits and losses affect where resources will be used.



Answers

Fill
in
the
blanks.

The
formula
that
relates
cost,
revenue,
and
profit
is
________.

So in this question we have to redefine that what is fixed cost and marginal cost means to accompany. So first alexander defined the fixed cost. The fixed course remains constant. Whether you are increasing the production of your company or you are decreasing the production of your company. For example, the cost of Watchmen. So the amount of money that you are giving monthly to Watchman is constant, whether you are increasing your production or decreasing, it doesn't matter as to watchman, the cost is fixed. So you can say the cost of Watchman is fixed cost to you. So I can write that fixed cost remains constant. Mhm. Mhm. With increase and production of an additional quantity and for example, it's additional quantity. For example, the costs associated to Watchmen. Next we have to define the marginal cost. So the marginal cost is the cost which is not fixed and it changes with the increase in the production of the additional quantity, for example, the cost of electricity. If you're producing more number of units, you're you're consuming more electricity and you have to pay more. That is we say that there's a marginal cost. So let's be right here, marginal cost is not a fixed cost. Or you could say it's a variable cost and it increases, it increases with the increasing production of quantity. Better to see a production of additional quantity. For example, I can write the cost of electricity. So this is the solution for the given problem. I hope you got a problem thank you

So when we're talking about diminishing marginal returns and costs, we're talking about the idea that as you ah, hire more workers or hire more capital, it might actually decrease output. So, um, increase in K or an increase in labor will actually decrease the quantity produced. Now, let's think about why this could happen. Suppose you have, Ah, one worker in a, uh, you know, a 10 by 10 foot by 10 foot room. Okay, Now you go to two workers. Ah, one worker and 10 bucks. 10 foot. Now you have two workers in 10. Put a dent foot. This might increase the output. You went from five units to seven units. Okay, You see a decrease in the marginal return you went from. You only had an increase in two, whereas from zero, you had an increase in five. But now suppose you go down the line and you have 100,000 people working in this 10 by 10 room, 10 foot by 10 foot room. This could get really, really crowded, so crowded that you're not actually able to produce anything. So in this case, going from, you know, to two we could even say like I don't know, 10 people where you only have one square foot per person. It's pretty crowded. So when you go from this range, when you go from 5 to 7 to zero, there has to be a turned down. At some point, there has to be a maximum. At some point, you could have 12 and three, 12 and three at three. That could be that maximum point where eventually things will get too crowded and this your output will actually decrease. If you have quantity here. And, um, labor slash capital your inputs Here, your inputs. Here, um, the amount of quantity that you're actually able to produce will decrease as your as the number of inputs you have increases.

Okay, let's talk about why a profit Max Myson firm will choose to produce. But the quantity where marginal revenue was marginal cost. To understand this, we first have to understand what happens in each condition. For example, what happens? We're marking a revenue sequel. The mark to marginal. Sorry. What happens when my revenues grated and marginal cost one of this since the case? Then we're saying that creating one more unit will give us more benefit. Then the cost We're going toe incur by making that extra units therefore, off course, we're going to do it. We're going to me this extra unit because we're gonna have more benefit cost. Let's look at the other condition. What happens when marginal costs created in marginal revenue? Well, if creating an extra unit is going to cost us more than it is going to benefit us, then we don't want to producer, we wanna produce last, right? We want to look at the previous unit now for that previous unit is a marginal cost still greater than the marginal revenue. If it is, go back one more unit, so on and so forth until you get to this equality where marginal classic was marginal. Revenue in that case, with the revenue is going to be equal to the cost. So whether to produce it or not, it's going to be ah, uh, tie breaking rule. All right, you can decide to make it this time not to make it. But we assume that whenever you get this equality, you will make it because again, making it will still pay off. You know, all your opportunity cost all of your explicit costs. So that is the point that you want to produce, that it's the profit maximizing quantity when marginal cost, it was marginal.

Let's talk about how informative T average variable cost curves in terms of profits. And being able to visualize when you're making profits to the average variable cost tells you how much you're going to spend to make this good on average, at that quantity, the marginal revenue again it's just equal to the person. That's one to tell you how much you're going to cane by making this good, Um, now let's see, in this case, for the quantity of one, we see that the average variable cost is higher than the marginal revenue. We are going to spend more making good than we are, too. But then we are going to sell it for so this is going to give us a negative profit or a loss? Well, the same is gonna be true for any quantity for which the average variable cost curve it's about the marginal revenue curve right, whether it be right from the left side or the right side. Now, whenever the marginal revenue curve is above the average variable cost curve, that's going to give us positive profits, because again we're tracking more for the good, then it's costing us to make so here we have positive profits, and that is how we can use the average. Where will cost curve with the market a revenue curve to see whether the firm is making profits or loss?


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