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33 votes
Accepted

Supermarket selling seasonal items below cost?

Is it simply for saving warehouse costs? Probably yes, holding onto inventory is very expensive. You have to pay for warehousing of the good, it takes the spot of some other inventory that might be ...
csilvia's user avatar
  • 2,739
29 votes

Does a store suffering increased theft generally cause higher prices?

prices should have already been set to maximize the trade off between profit-per-sale and volume sold But profit-per-sale depends on costs, which depends on the theft numbers, so if theft increases, ...
Giskard's user avatar
  • 29.2k
19 votes

Does a store suffering increased theft generally cause higher prices?

What you're describing is retail shrink. It is taken into consideration when setting prices. A business will typically have consultants come in, measure their shrink to be X percent, and prices will ...
Aww_Geez's user avatar
  • 291
14 votes

Supermarket selling seasonal items below cost?

It's not about saving warehousing cost. They can't sell 12 months old Christmas chocolate next year, so they have to sell it in the next few months. Their options are to either sell it to customers, ...
Peter's user avatar
  • 261
10 votes
Accepted

Fixed cost of a firm

It is the first one, $TC(0) = FC$. This is the definition. Also consider that it is not clear what is "transformed by $q$ in some way". In case of $$ \frac{5q}{q+1} + \frac{5}{q+1} $$ are the two ...
Giskard's user avatar
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9 votes

Why don't Burgers cost 5 cents?

What he's saying is that once the burger is already made, the cost of making the burger is a sunk cost, and thus the marginal cost of the burger is just the cost of the tiny labor involved in picking ...
Kitsune Cavalry's user avatar
  • 6,608
9 votes

Does a store suffering increased theft generally cause higher prices?

Price is set by the competition In general, the prices are set by the supply and demand for the whole market. If a merchant sells the same goods for a higher price than competitors without a ...
Peteris's user avatar
  • 488
8 votes
Accepted

Why don't Burgers cost 5 cents?

This question really forces one to think about the role that quantity plays in the competitive equilibrium. The two main points that, I think, explain the way this works are: The market quantity is ...
John Q. Noob's user avatar
7 votes

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

As said in my comment, The fixed cost is usually defined as the cost when quantity is equal to zero, and the variable cost as the total cost minus the fixed cost. Hence, if $TC(q)$ is the total ...
Elias's user avatar
  • 983
7 votes

Understanding the shape of a Marginal Cost Curve

You are missing the average cost curve in the same diagram. Basic algebra gives us the following. Let's find the minimum of the $AC = C/Q$. We have $$\frac {\partial AC}{\partial Q} = \frac {MC\...
Alecos Papadopoulos's user avatar
7 votes
Accepted

Understanding the shape of a Marginal Cost Curve

I'll offer a less algebraic alternative to Alecos's answer. In short, yes and no. The "no" part Normally the MC and AC curves would look like the following, with MC intersecting AC from ...
Herr K.'s user avatar
  • 15.4k
6 votes

Proving AC is minimized when MC=AC

You're making this way more complicated than it needs to be. Edit: Okay it's a little more complicated that I thought but hey! What a cool result! $AC = \frac{C(q)}{q} \\ MC = C'(q)$ When you minimize ...
Kitsune Cavalry's user avatar
  • 6,608
6 votes
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Why is railway electrification in North America far less common than in Europe?

Essentially, the question of electrification is a trade-off: electrified railways are more energy efficient, the engines often supply more power and they are quieter and without local emissions while ...
Jan's user avatar
  • 176
6 votes
Accepted

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

Your intuition is correct. First, you're right that "marginal cost only depends on variable cost", since \begin{equation} MC(q)=\frac{\mathrm dTC(q)}{\mathrm dq}=\frac{\mathrm d(FC+VC(q))}{\...
Herr K.'s user avatar
  • 15.4k
5 votes

Why don't Burgers cost 5 cents?

You might want to read up on repeated games. You are right, in a one-period model, once produced, the seller has little marginal cost, so could potentially sell at any price. However, his price at $...
FooBar's user avatar
  • 10.7k
5 votes

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

The people who do the planning do explicitly account for the value of time and convenience to transit users. At least, in all the systems I've worked on. (source: I have had jobs where I worked on ...
410 gone's user avatar
  • 8,143
5 votes
Accepted

Calculating cost-minimizing inputs with 3 inputs in production function

The production function $$F(x) = x_1^{\alpha_1}x_2^{\alpha_2}x_3^{\alpha_3},$$ has the derivative with respect to $x_j$ where for sake of example I choose $j=1$ $$\frac{\partial F(x)}{\partial x_1} = \...
Jesper Hybel's user avatar
  • 3,296
4 votes

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

Short answer: Yes, it is possible. Decreasing average cost implies that marginal cost is less than average cost ($MC<AC$, which can be proved by simply taking the first derivative of $C(q)/q$). ...
HarmlessEcon's user avatar
4 votes

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

Yes, if there are non-zero fixed costs, and constant marginal cost, then average cost decreases strictly monotonically with quantity, asymptotic to the marginal cost.
410 gone's user avatar
  • 8,143
4 votes

Decision over "max" production function:

Hint For profit maximization, either $x_1$ or $x_2$ (but not both) must be zero. If not, say $x_1^*>x_2^*>0$ at the optimum, then one could increase profit by lowering cost by reducing $x_2^*$ ...
Herr K.'s user avatar
  • 15.4k
3 votes
Accepted

How to Graph Short-Run Average Cost?

$\newcommand{\fone}{\color{red}{f_1(q)}}$ $\newcommand{\ftwo}{\color{blue}{f_2(q)}}$ For the sake of simplicity, call $$ f(q) = \frac{w}{k}q + \frac{rk}{q} = rk\left(\underbrace{\frac{1}{q}}_{\fone}...
caverac's user avatar
  • 1,216
3 votes
Accepted

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 is fine as an illustration of a possible relation between the long run average cost curve and one particular short run average cost curve. Long run in the context of a firm's cost ...
Adam Bailey's user avatar
  • 8,346
3 votes
Accepted

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

Yes, there's a cost to running the New York Stock Exchange. There's the premises, utility bills, staff, systems, and so on. Yes, this affects the price of stocks on the exchange. The exchange recoups ...
410 gone's user avatar
  • 8,143
3 votes
Accepted

fixed an marginal cost calculation issue

The marginal cost is 3. Marginal costs do not depend on the fixed cost, and when your variable costs are constant, then the marginal cost and the variable cost are the same. Note that your total cost ...
Regio's user avatar
  • 4,188
3 votes
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Deriving long-run cost functions from production function

Don't get stuck with math. Look again at the production function. Perhaps draw out isoquant curves (for the same output, how could you vary $K$ and $L$). How are the isoquants for this production ...
Art's user avatar
  • 2,784
3 votes
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How to calculate the minimun of Average Fixed Cost knowing the Average Fixed Cost

As the quantity of output of a good increases, fixed cost (by definition) remains the same and therefore average fixed cost per unit of output continuously decreases. Therefore the average fixed cost ...
Adam Bailey's user avatar
  • 8,346
3 votes

Relation between marginal cost and output elasticities

I figured it out: The first-order condition of the cost minimization problem for, say, material inputs $m_{it}$ gives: $ \lambda \frac{\partial F}{\partial M} = P_M $ Where F is the production ...
hrrrrrr5602's user avatar
3 votes

Why min AC = min SRAC at the minima of AC curve?

Short-run implies that some decision variable cannot be free set, it is fixed for a time (in the short-run). In the long-run all variables may be freely set. Let us denote the fixed variable by $x$. ...
Giskard's user avatar
  • 29.2k

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