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Ask your teacher what he meant, because there is either a misunderstanding or he is mistaken. Producer's surplus will come down to $y \cdot p - VC(y)$. In the first graph, by definition of $AVC$ we have $$y \cdot (p - AVC(y)) = y \cdot p - VC(y).$$ In the second graph, using $\int MC = VC$ and $VC(0) = 0$, we have $$\int_0^y p - MC(x) \text{d} x = \... 7 There is a scientific tradition of decades that occupies itself with the measurement/estimation of the productivity/efficiency of firms. The three strands of the literature are Data Envelopment Analysis (DEA), Discriminant Analysis (DA), and Stochastic Frontier Analysis (SFA). I am familiar with the third one. Stochastic Frontier Analysis starts with the ... 5 AVC<AR means, without considering fixed cost, the firm is making a profit of AR-AVC>0 per unit of output. Compare the two options: keep producing vs shutdown: Keep producing: \text{Avg Profit}=\underbrace{AR-AVC}_{>0}-AFC Shutdown: \text{Avg Profit}=0-AFC Since AVC<AR, staying in production is better since the revenues can be used ... 5 Your intuition is correct. First, you're right that "marginal cost only depends on variable cost", since $$MC(q)=\frac{\mathrm dTC(q)}{\mathrm dq}=\frac{\mathrm d(FC+VC(q))}{\mathrm dq}=\frac{\mathrm dVC(q)}{\mathrm dq}.$$ Next, if marginal cost is some constant k, then variable cost must be VC(q)=kq, because we can ... 4 A knowledge-based company sells products or services that are primarily knowledge-based. This doesn't have to be new knowledge - it can be existing knowledge. An R&D company earns its way by developing new knowledge. 4 Textbooks: Mas-Colell, Whinston, and Green (1995). Microeconomic Theory. Chapter 5 Geoffrey Reny. Advanced Microeconomic Theory, 3rd edition. Chapter 3 Kreps (1990). A Course in Microeconomic Theory. Chapter 7 Varian (1992). Microeconomic Analysis, 3rd edition. Chapter 5 Lecture notes: I think undergraduate notes are more useful on this respect. For ... 3 Investment ultimately comes from households through savings. From a macroeconomic perspective savings is equal to to investment (S=I). Investment comes from income because saving is portion of income that is not consumed. For example, if your income is \\\1000 and you consume \\\700 of it the \\\300 you are left it is by definition saving and ... 3 The Flow of Funds (Financial Accounts of the United States) should have what you need. For example, table B.1 Net National Wealth Table Description Table (Billions of dollars; amounts outstanding end of period, not seasonally adjusted) might be very close to what you want. 3 No, the marginal cost curves are not necessarily the same for each firm in the market. However the values of marginal costs are. To disprove the general claim that "The marginal cost curve of each firm in a competitive market is the same" we simply need to find one counter-example, such as the one given below: Suppose there are two firms in the market and ... 3 If F(K,L) is a homogeneous function of degree one then so is$$ \Pi(K,L) = F(K,L) - R \cdot K - w \cdot L. $$This follows straight from the definition of homogeneity. (A definition of homogeneous function can be found here.) This means that if a maximal profit exists it is zero. Otherwise you could increase all inputs by say 100%, thereby increasing both ... 3 Compustat Annual is used in Gabaix and Landier (2008). A famous stylized fact is the power-law distribution (by Gabaix again) of firm sizes. But power-law claims have been criticized as resulting from poor measurement. 2 The "production function" in economics and econometrics is not an engineering concept. It is a highly abstract construction where the myriads of inputs used are lumped together in very few categories: "capital" and "labor" being the most usual ones, while sometimes inputs critical to an industry like say "Energy" may be singled out and appear in the ... 2 Since I'm a macro rather than a corporate finance guy, my go-to resource for getting a rough sense of aggregate magnitudes is the flow of funds accounts. Take a look at the B.102 balance sheet for nonfinancial corporate business, and also the F.102 flows for nonfinancial corporate business. The relevant insights I draw from this data are: In aggregate ... 2 I know very little about this, but check out Jake Zhao's work. He's an AP at Stony Brook. From the abstract, My model finds that 63% of the increase in corporate cash holdings can be accounted for by the increase in cash flow volatility. The increase in cash flow volatility observed in the data arises from a decrease in the correlation between ... 2 Actually there is a large literature on the estimation of production functions. Usually, one starts out with assuming a particular functional form (CES, Cobb-Douglas, etc.) and then estimating the parameters of the model. As indicated, the mathematics of this estimation are often nontrivial. However, here are some early references which can provide you with ... 2 MP = Change in output / Change in input For the first product MP1 = 1 / 500 For the second MP2 = 1 / 600 Hence, the MP is decreasing. Hope this helps. 2 In intro micro you usually assume that every firm in a perfectly competetive market has the same costs and production function etc. Hence, the MCs are the same for every firm. Under this assumptions, every firm will produce the same quantity in equilibrium. 2 Here are four possible reasons: Reason #1. Fixed costs per employee. Due to taxes, insurance, 401k plans, etc., the cost of an employee (to the employer) is significantly greater than the employee's take-home pay. For simplicity, assume an employer must bear an additional lump sum cost per employee that is equal to 20% of each employee's current take-home ... 2 I don't know your model. Just some general input: It seems that you have a model with a continuum of firms. That is, there are many firms and each one is strategically small. In mathematics, a measure of a set is a way to express the size of this set. Hence, the measure of firms alive represents "how many firms are active". The authors normalize this ... 1 The formula you have above to solve for multifactor productivity (or total factor productivity) is correct; however, after reading your post, you are interpreting it differently. The terms with the natural logs in the formula is asking you to obtain the rate of change (growth rates) [same as the difference in logs seen in formula] of a particular period ... 1 Seems like the problem specified as specified right now should have as solution C(\omega)=\frac{\delta(\omega)}{P(\omega)} if P(\omega)=\min_{\omega'} P(\omega') and zero otherwise. The solution proposed cannot be optimal because the budget constraint is not depleted. If we let \omega^* be the index of the cheapest good, the indirect utility would be ... 1 Start with the second stage, this is just Cournot competition between firm 2 and firm 3. You can solve this for the Nash equilibrium by setting the first order condition for firm 2 and firm 3 and solving these two equations, taking q_1 as given. This will give you quantities q_2 and q_3 in terms of q_1 which you can then plug into the profit function ... 1 In general a best response function returns a set of best responses. This can be seen in much simpler games than Cournot. To give a degenerate example, if a player is always indifferent between their strategies, their best response function will always return the set of all their strategies. When you have best response functions that give sets with more ... 1 It appears we start at long-run equilibrium point. The fact that all firms operate at the level where q^*:MC = \min AC, means that given demand Q^d and the cost structure, what is endogenously determined is the number of firms m:$$Q^d = mq^* \implies m^* = \frac {Q^d}{q^*} Assume that aggregate demand increases. In the microeconomic setting we ...

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I think this can be explained by prisoner's dilemma. Short answer: if by pay cuts a firm would lose its competitiveness in attracting high quality employees, the best strategy for a firm is to lay off low quality employees. Suppose a firm has two strategies to reduce cost (not necessary in a bad time): pay cuts ($C$) or layoffs ($L$). --------------- ...

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Identifying business cycles or short/medium fluctuations of an economy can be quite hard. In business cycle theory it's pretty common to use the Hodrick-Prescott-Filter to identify short term (cyclical) fluctuations in gdp. The Hodrick-Precsott-Filter is in principle a bandpass filter that separates short term and long term fluctuations from each other. At ...

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Prediction is difficult, especially about the future. (Berra, Goldwyn, Bohr et al.) The problem with noting that recessions often occur immediately after low periods of unemployment is that you do not now at the time that it was a low rather than a pause. There are several occasions when unemployment appeared to stop falling but which were not ...

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Ideally, but not always feasible, the first option would be to select a similar region where the law is not in place and compare them (e.g. different country / State / city) If it is not possible to compare with another region, then chose a similar industry. I would try to justify it well though, and comparability would be harder to prove. For example, if ...

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The standard, if somewhat aged textbook for graduate study of industrial organization is The Theory of Industrial Organization by Jean Tirole. Tirole has the merit of tacking issues around market structure in a quite direct fashion. A slightly more modern text is Industrial Organization: Markets and Strategies by Paul Bellflamme and Martin Peitz A less ...

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I've heard of this phenomenon but not for the reasons you suggest: The largest corporations tend to have the most interlocks (Table 4). This may occur because the directors of the largest corporations are the most knowledgeable, the most capable, and the most accomplished men available. Other corporations would naturally seek their advice and ...

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