Questions tagged [cost]

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how can Marginal price costing mitigating loss? [closed]

By a firm using marginal cost pricing, they set their price equal to marginal cost. This leads to no welfare loss. Marginal cost pricing however can make the firm take losses and not be able to ...
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Is it productively and allocatively efficient? [closed]

IF price, MR and MC are 9 and the output is 6. can it be allocative efficient for monopolistic competition ??
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1answer
60 views

Relation between marginal cost and output elasticities

Does anyone know of any results that show the link between marginal cost and the output elasticities analytically? I am looking at production and cost theory books but can't find any results that ...
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1answer
30 views

Sunk costs - Book value and Market value

i try to understand the concept of sunk cost and how we compute sunk costs when there is a difference between book and market value. For example, if the book value of assets is ...
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Fixed cost, sunk costs and variable costs

i need to answer to this question but i'm wonder if i need to use the short-run cost function (C = wL * rK) of not. Can you help me ? This is the statement : A small business owner employs 5 workers. ...
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2answers
5k views

Supermarket selling seasonal items below cost?

In a British supermarket, I saw the prices of Christmas chocolate gift boxes being cut dramatically (£1.50 to £0.15, and £7.50 to £0.22). I don't quite understand this behaviour, where the chocolate ...
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0answers
17 views

Are economic profits above normal for many firms in a perfectly-competitive increasing-cost industry?

In a perfectly-competitive constant-cost industry, all firms will have normal profits in the long run. This fact is very clear to me as the long run supply curve is perfectly elastic and hence each ...
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14 views

How can costs curves shift in the short-run?

I have been researching about Orsted economies of scale strategy and I am trying to argue that due to acquisitions and aliances, the costs curves of a firm may shift in the short-run, consequently ...
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1answer
70 views

How to calculate the minimun of Average Fixed Cost knowing the Average Fixed Cost [closed]

Given the Average Fixed Cost, how does one calculate its minimum?
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1answer
858 views

Is it true that if marginal cost is constant, then average variable cost is also constant and equals marginal cost?

I'm inclined to think yes because marginal cost only depends on variable cost (fixed costs don't matter), but I'm not 100% certain. Basically, my thought process is that marginal cost of producing one ...
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7answers
3k views

Does a store suffering increased theft generally cause higher prices?

If a store suffers an increase in theft, will it generally lead to higher prices at that store? My answer is that prices should have already been set to maximize the trade off between profit-per-sale ...
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8 views

Levelized cost of energy - why discount the amount of electricity as well

According to Wikipedia, the levelized cost of electricity is a measure of the average net present cost of electricity generation for a generating plant over its lifetime. According to the formula ...
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1answer
604 views

Fixed cost of a firm

Suppose that a firm has a total cost function given by: $TC(q) = \frac{5}{q+1} + 5 + 5q + q^2$. What is the fixed cost? I seem to be able to come up with two "answers", which cannot be correct. My ...
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1answer
44 views

Will a shift in the average total cost curve mean that the marginal cost curve will also shift up?

I understand the basic concept of marginal cost and average total cost. I am currently learning about costs curve for an oligopoly I read online that the marginal cost is not determined by fixed ...
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1answer
220 views

Deriving long-run cost functions from production function

Suppose that I have a production function $(aK + bL)^3$ in a perfect competition where a and b are constants. I am confused on how to obtain the long-run cost function from this production function ...
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1answer
992 views

Fixed costs in the long run

Can anyone please help me understand how fixed costs in the long run are zero? In Microeconomics by J. M. Perloff, the author gives the example of a factory's rent and says that if we are talking ...
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2answers
29 views

Are there any economic theories around the concept of companies focusing on that which is easier to calcuate?

A lot of the organisations I have worked for have focused on that which is easy to calculate. For example, direct cost savings are often easy to calculate, but analysing the wider implications of a ...
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3answers
295 views

Is it possible that the minimum point of a short run cost curve does not touch the long run cost curve?

In the answer to this question, the answerer said "the minimum point of a short run cost curve will be above the long run cost curve". Is it true? If so, how would it be so? I thought that if e.g. ...
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1answer
91 views

Why is the opportunity cost 0 in this case?

My book says that the opportunity cost of purchase of a specialized equipment that has no alternative use is zero and hence such an expenditure is a sunk cost. However, while calculating the user cost ...
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2answers
789 views

Why is the price of capital ‘r’ ? (From Cost function)

according to the Cost formula in microeconomics class, Total Fixed Cost is represented as “rK” (K as in unchanging, fixed K) now my economics teacher tells me this ‘r’ is the interest rate at which ...
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1answer
278 views

Interpeting equivalent annual cash flows

So i have this question: RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects; a new airplane for seeding rain clouds or a new weather ...
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1answer
19 views

Trade cost on Endowment model

I think in real endowment model, if there's trade cost as 't', then the MRS should be really small or large to make a consumer trade his endowment goods. Is there any model include this trade cost or ...
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1answer
47 views

Costs of transportation

I assume that it makes sense to ask for the energy costs of transportation of different goods per weight and volumetric mass density, depending on the means of transportation (truck, train, ship, etc.)...
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1answer
55 views

Marginal Cost Calculation issue

I calculated the Marginal cost for the below question. But it seems the results are wrong After coming up with an innovative idea for a new product, you paid 4000 to an industrial designer to draw ...
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1answer
65 views

fixed an marginal cost calculation issue

I'm trying to solve a question that is quite difficult for me. I did part of the question but, bit difficult to decide the exact answer for the below question. After coming up with an innovative ...
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1answer
375 views

Can implicit costs be negative?

I think that conventionally implicit costs are positive but if for example we consider a negative interest rate as an implicit cost, the implicit cost would be negative. Is this true? Can implicit ...
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2answers
314 views

In perfect competition, why is there economic loss if marginal cost > marginal revenue?

Here's a graph for reference: In the left graph, I read from a book (CFA L1 notes) that At any output above the quantity where $MR = MC$, the firm will be generating losses on its marginal ...
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0answers
135 views

Vertical Marginal Cost curves

When would a marginal cost curve be vertical? I understand this happens when the marginal cost jumps, from say 0 to 100, but in such a case, I think there should be a discontinuity rather than a ...
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1answer
301 views

Decision over “max” production function:

I've been presented with the following problem: $$y=3(x_3)^{\frac13}(\max\{x_1,8x_2\})^{\frac13}$$ And the objective is to both maximize profit and minimize cost. First of all, if the problems are ...
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0answers
37 views

Excessive entry without fixed costs

Mankiw & Whinston (1986) show that the market may contain too many firms. The intuition is that if a firm charges a suboptimal high price, a rival has a demand curve that is "too high" and can ...
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1answer
4k views

EOQ - how to calculate holding cost

This is very simple, however, I have the following setup Suppose that the company ABC has a product that shows a constant annual demand rate of 3600 items. One item costs £3. Ordering cost is £20 per ...
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2answers
175 views

Why don't public transport networks have more routes to each terminal in order to reduce the number of transfers?

When using public transport, we often need to transfer to a different route during of the journey. These transfers have costs – I can think of the following, but there may be more. If we're reading, ...
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2answers
211 views

How does the EBQ formular come out?

I figured out how the economic order quantity (EOQ) formula comes out. I know it is quite similar with economic batch quantity (EBQ), sometimes termed economic production quantity (EPQ). I just don't ...
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4answers
242 views

How to track costs and calculate price?

I run a large Massively Multiplayer Online (MMO) gaming community and one of the services we’ve try to provide to our members is crafting. One of the challenges of this has been determining the price ...
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1answer
692 views

Does Average Total Cost (ATC) include implicit opportunity costs?

Does the average total cost include opportunity costs? If so, are these opportunity costs considered fixed costs or variable costs? How are they calculated.
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2answers
99 views

Is there a cost to running the NewYork Stock Exchange? Does it affect the price of stocks sold on the exchange?

Is there a cost to running the New York Stock Exchange? For example electricity costs, management costs, rents on the building(s). How do these costs (if any) affect the price of stocks sold on the ...
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3answers
955 views

Why is railway electrification in North America far less common than in Europe?

Why is railway electrification in North America far less common than in Europe? I suspect that the answer has something to do with the economics of electrification. In Europe, railway ...
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0answers
134 views

Question on an argument in “The Myth of Absolute Advantage”

Brandis (1967) argues that "absolute advantage does not exist" and "that it is a logical impossibility". (See also comment, comment, reply.) My question here is very narrow and specific. I do not ...
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2answers
4k views

Understanding the shape of a Marginal Cost Curve

My class IB has just discussed allocative efficiency and hence consumer and producer supply. They explained the concepts with a diagram like this: It all made perfect sense to me until it was ...
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3answers
2k views

Is it possible to have constant marginal cost and decreasing average cost simultaneously? [closed]

I thought about possibility of occurring such event in the case of presence of fixed costs, but I would like to know others opinions.
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2answers
1k views

Proof that for increasing AC MC(Q)>AC(Q) at any Q>0? [closed]

I know the "common sense" proof, but how can we prove it algebraically?
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0answers
432 views

Monopoly marginal cost [closed]

I have recently been stumped on a microeconomics question where it gives a monopoly firm, its operating ATC (average total cost), price (average revenue), and quantity traded. First thing it wants me ...
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1answer
202 views

How to Graph Short-Run Average Cost?

I've learnt to roughly draw graphs of various functions like isoquants of Cobb Douglas function, i.e., $k=√q/L$. Here first derivative is negative so it's downward sloping and second derivative is ...
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1answer
909 views

Are all points on the Long Run Average Cost (LRAC) curve productively efficient?

The definition of productive efficiency is that any given output is produced for the lowest possible cost. In the short run, only the minimum point on the SRAC curve is productively efficient - this ...
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3answers
523 views

How do I calculate the cost per usage of a machine?

If you buy a machine for 10.000 dollars, which costs as a yearly write-off 2000 dollars, how do I calculate the cost per usage of a machine? Do you just divide the the yearly write-off by the times ...
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1answer
3k views

Why is ATC tangent to Demand in a Monopolistic or Mopolistically Competitive Firm Making Zero Profit?

I understand that the Average Total Cost is equivalent to demand in a zero profiting monopoly or monopolistically competitive firm in order for there to be zero profits (when ATC = P at a given ...
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1answer
1k views

Optimal production level for a typical firm in long-run

Assuming all firms have identical cost functions. Now suppose there is an increasing shift in the demand curve. As we all know that for increasing costs case, both average costs (AC) and marginal ...
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1answer
647 views

Derivation long run cost function of three inputs with Leontief-like characteristics

Suppose that a firm produces a good using capital, skilled labor, and unskilled labor. Let $K$ denote the amount of capital,$L_1$ unskilled labor, $L_2$ skilled labor. The production function is $f(...
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1answer
5k views

Why is the short run average cost curve not a tangent to the long run average cost curve at the lowest point on the short run average cost curve?

The diagram from the Varian textbook shows that the SRAC curve is tangent to the LRAC curve at a point which is not the bottom of the SRAC curve. It would be really helpful if someone could explain ...
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1answer
15k views

Can one Calculate Fixed and Variable Cost From TC and Quantity Alone?

I have been asked a question and believe there is a mistake in the problem. I have been given a table of values, Quantity and corresponding Total cost. From those numbers I can easily calculate the ...