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6 votes
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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
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5 votes

Why do some perfectly competitive, loss-making firms shutdown and others don't?

$AVC<AR$ 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 ...
Herr K.'s user avatar
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3 votes

Companies mutually owning each other

You can have both cases: X=Y=100 and X=Y=0 in your accounting. Both companies show the shares of the other company in their books. If you check the balance sheet of A and B respectively, you will find ...
T123's user avatar
  • 303
3 votes

Does neoclassical economics explain or assume private property rights?

It is true that mainstream economics (which includes neoclasicall economics) is empirical but note that any explanation can only arise from theory (whether theory is explicitly formulated or only ...
1muflon1's user avatar
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3 votes
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Static Profit Maximization Short Run Shut Down Decision

In the short run, you cannot sell your capital. To do so would be a violation of "short run" and would instead be the "long run". Case 3 (and I would also contest Case 2) are ...
RegressForward's user avatar
3 votes
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Shouldn't big tech want to split up?

This is going to be a hard find because it is not true. These companies have increasing returns to scale over the relevant range and for the foreseeable future. Many technologies, particularly ...
RegressForward's user avatar
3 votes
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What am I doing wrong in the derivation of Bass diffusion model?

You are missing an integration constant $$ \log\left(\frac{p + qF(t)}{1 - F(t)}\right) = (p + q)t + \color{red}{\tilde{C}} $$ This constant you can name it whatever you want, I'm going to name it as ...
caverac's user avatar
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3 votes

How can perfectly competitive firms earn zero profits?

First, let's deal with the semantics and terminology aspect: what the word "profit" means in Economics, and what the word means in the everyday/business/accounting use, are two different things. In ...
Alecos Papadopoulos's user avatar
2 votes
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Should I include country dummies when I combine datasets of 3 countries?

I would advise you to think deeper about your research question first, as this will guide the decision to use country fixed effects. If you would like to exploit cross country variation, for example ...
mosquitonomics's user avatar
2 votes

Is it possible for a firm does not have shutdown point?

$TC(q)=10+3q+0.5q^2$ is a quadratic cost function and has a shutdown point at $P=3$.
Herr K.'s user avatar
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2 votes
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Is the pooling equilibrium profit maximising for the firm?

As suggested in the comments, there are many different signaling models with firms and workers, and also what is the "standard model" to differnt people differs in details. In most of those ...
Bayesian's user avatar
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2 votes
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BNE: Incomplete Information Cournot

The probabilities are obtained using Bayes updating. Let $f_i = L$ be the event that firm $i$ is low and let $f_i = H$ be the event that firm $i$ is a high type. Assume that firm 1 knows she herself ...
tdm's user avatar
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2 votes
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Is there a theory of market supply that takes into account the individual firms' demand for credit?

In my opinion, the literature on this topic is relatively scarce, and I do not really understand why. Probably because the Modigliani-Miller theorem on the irrelevance of firms' capital structure has ...
Bertrand's user avatar
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1 vote

Companies mutually owning each other

I do not think X=Y=100 is logically wrong. Shares are traded on their perceived value. If the sellers' perceived value is low A and B can simultaneously buy all the shares in the other. A would ...
H2ONaCl's user avatar
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1 vote
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What is the meaning of "labor input" in the context of incentive theories?

Since the authors state that the total labor input is: $$\int t_i(k)dk$$ the meaning of the total labor input in this case would be that it is the sum of all attention $t_i$ allocated over those tasks ...
1muflon1's user avatar
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1 vote
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When do the curves touch the axes and when don't they?

Lets first try to understand what it means: when a demand / supply curves touch the axes. The point where the demand curve touches the Y-axis (Price-axis) can be interpreted as the price which makes ...
Levittstyle's user avatar
1 vote

When do the curves touch the axes and when don't they?

Broadly, the answer to your question is it depends on the context. Generally, if you have some sort of functional form for the curves, you can tell whether they touch the axes by seeing if there is an ...
Amaan M's user avatar
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1 vote
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Are prices part of total factor productivity?

In micro-econometric work, prices may or may not be part of TFP. The literature recognizes two versions: TFPQ (Quantity-based) TFPR (Revenue-based) Clearly, TFPR must include prices (Revenue = ...
BB King's user avatar
  • 6,158
1 vote

Are prices part of total factor productivity?

No actually by default when you use Cobb-Douglas function the output is not even measured in monetary units but rather as output per unit of time. This output per time can be still called income ...
1muflon1's user avatar
  • 56.8k
1 vote

Best Response Functions for Cournot

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 ...
Xabu's user avatar
  • 56
1 vote
Accepted

Revenue maximization

Firm 1's objective is to maximize profits : $$\max_{q_1\geq 0} \ \ \left(a - b(q_1+q_2)\right)q_1 - cq_1$$ Solving the above problem, we get the best response function of firm 1 as $$q_1 = \dfrac{a - ...
Amit's user avatar
  • 8,851
1 vote

Why is the long-run average production cost not necessarily the same as the minimum average total cost?

There is a nice explanation, just take a look at the source here.
london's user avatar
  • 2,010
1 vote

Why is the long-run average production cost not necessarily the same as the minimum average total cost?

Denesp's comment is your full answer: it's a badly-drawn chart which fails to do its one job, that was to illustrate that the long-run cost curve consists of joining up the minima of the short-run ...
410 gone's user avatar
  • 8,168
1 vote
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How is the "value added" of firms distributed

Interesting question. Indeed, it's somewhat difficult to model value added because in many models firms don't make profits all the time. But therein lies your answer I think. Model VA as $Z$ in a ...
Fix.B.'s user avatar
  • 2,668

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