# Tag Info

## Hot answers tagged long-run

7

There are trends that has allowed stock markets in advanced economies to grow faster than GDP for a long time: Branching out abroad. This gives access to faster growing markets in developing countries. This trend will end when all countries are advanced economies. Fewer private companies. This trend will end when most of GDP is generated by companies listed ...

6

Your are right. You have to minimize the average cost. $$c(Q)=\frac{C(Q)}{Q}=6000 +40Q+Q^2$$ Calculate the first derivative and set it equal to zero: $c'(Q)=40+2Q=0$ Solve this equation for $Q$. Denote the optimal value as $Q^*$. $Q^*$ can be a local maximum or a local minimum If $c''(Q^*)>0$, then you have found the local minimum. The local ...

5

Survivorship bias. (Credit to @nathanwww's answer. Here I merely add a few details.) The Dow Jones Industrial Average (DJIA) was first published at 40.94 on 1896-May-26. It closed at 24,448.69 on 2018-Apr-23. Let's call that 122 years. That's a 5.4% annual compound growth rate — certainly faster than the US GDP growth rate over that 122-year period. ...

4

The quantity produced does not depend on the fixed costs. Fixed costs only influence the decision of whether or not to produce, not how much to produce. The individual firm's level of production is determined by MR=MC, independent of fixed costs. Firms will produce less when fixed cost decrease, because, as you point out, more firms will produce (entry in ...

4

An aspect of the matter could be described as follows: We want prompt replacement of (existing) fixed capital because, I guess, it creates currently "unacceptable" levels of negative externalities, and we know better than to think that through the pricing of the externalities we will be able to reverse the damages, and all swell. From this point of ...

4

This depends on long-run economic and demographic trends that are very difficult to forecast. That said, the medium fertility scenario in the UN's 2012 World Population Prospects puts the population in 2080 of China at 1173 million, of Europe at 659 million, and of the US at 446 million. Since the combined population of Europe and the US, at 1105 million, ...

4

Of course this is is possible. China is a very large economy currently and it is likely quite a way away from reaching its production frontier. It has lots of room to grow. A lot can happen in 65 years and any forecasting this far into the future will be subject to a high degree of error. Don't forget that the US and Europe are dynamic as well. The current ...

3

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 function different from those of standard Cobb-Douglas production function? Hint: perfect substitute.

3

The main reason why long run aggregate supply is vertical is that in the end the production capacity of every country is limited. In the end there is always some maximum number of number of stuff we can produce (of course, there can be economic growth which expands our production possibilities but the LRAS is basically given by the production possibility ...

3

Too long, didn't read: the market does not care. Colombia's Pension Reform: Fiscal and Macroeconomic Effects, by Klaus Schmidt-Hebbel, states black on white (p 22) that issuing explicit domestic debt for paying off implicit government debt does not have first-round macroeconomic and financial effects on the condition that the financial markets see ...

2

Yes, it is possible. In the long run, firms enter until they break even. Suppose firms are symmetric. Then for each firm the break even condition is that the average costs equal the price. This is because the price is equal to the average revenue. The average revenue is given by $px/x=p$ where $p$ is price and $x$ is quantity. If revenue equals costs on ...

2

Investing in the stock market gives you access to two things: A stake in the companies whose shares you own, including income that they generate and reinvest in new internal projects. Access to a stream of income generated by these companies, which they distribute to shareholders through dividends, share-buybacks ect. As you suggest, it is impossible for ...

2

If survivor bias means that more successful firms more typically list on a public exchange and less successful firms do so less often, then it would be possible for "the stock market" to grow faster than GDP indefinitely. Perhaps trivially, and ignoring survivor bias implicit in stock market indices per se: you might also assert some condition where the ...

2

To keep things simple, let's assume that inputs to production other than capital goods are constant over time, and that production technology is regarded as one of those inputs (ie there is no technical progress). Let's also assume that the production function is such that output (across the whole range of the production possibility frontier) is an ...

2

Some great answers miss your point because they focus on indexes, whereas you are asking simply about the market value of the x largest companies relative to gdp, if there is a limit. Indices are plagued with selection bias, survivorship bias, dividend reinvestment, acquisitions. My humble opinion is that barring companies owning the shares of other public ...

1

yes, the term that you showed for the ALDR non-stochastic steady state: $$\frac{ \beta_1 + \beta_2 }{1- \rho_1 -\rho_2}$$ is long-run multiplier or sometimes also called long run equilibrium coefficient (see Verbeek 2008 Guide to Modern Econometrics 4th ed. pp 340). As far as I can understand there is not much difference between the two concepts in the ...

1

The idea that the long run average cost curve (LRAC) must pass through the minimum points of the short run average cost curves (SRAC) is a fallacy, but it seems to be a remarkably plausible one. It was the source of a famous error by the economist Jacob Viner, referred to in this paper by Silberberg. Underlying the fallacy is perhaps an assumption that the ...

1

Adam Bailey is correct. Consider the production function $f(x_1,x_2) = x_1 + x_2/2$ where $(x_1,x_2)$ are inputs. If the input costs are $w_1=w_2=1$ and all inputs are freely chosen, the solution to the cost minimization problem is \begin{align*} x_1 & = y \\ \\ x_2 & = 0. \end{align*} However, in the short run one or more of the input quantities ...

1

Looking at the context of the link posted, seems like you have the correct idea and the answerer might have misspoken. The minimum of SR cost curve should be on the LR cost curve. Suppose (for contradiction) that SR cost curve is above the LR cost curve at point $x$ on LR cost curve. This point $x$ involves a set of fixed variable (which is adjustable in the ...

1

Grigory, I am glad you are skeptical of this 'theory'. I am not sure I understand you line of argument correctly, but given the assumptions it seems to be correct. Accelerator cannot be sustained in long-run due to fixed factors of production (think land, labor force, etc). Accelerator theory is the sense you are presenting it is not present in modern ...

1

The SRAS wage price being bumped up temporarily means that employers are forced to pay more for labour. From the graph, you can see aggregate demand is much lower at the higher wage price (SRAS1) however the stickiness of wages & employment means that employers have been forced to pay more in wages but cannot immediately adjust the 'supply' by firing ...

1

The concepts of short-run and long-run equilibria certainly feature in microeconomics. Indeed, they have done so for over a century: see Marshall's Principles of Economics (1890).

1

It is one and the same thing. Notation might be different.

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