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Work on Economics - Essay Example

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The elasticity of the demand is calculated based on the changes in price while all other factors are held constant (Gans & Mankiw, 2011). It therefore, gives a measure of responsiveness of quantity demanded depending on the changes of prices of the while the other factors are held constant. …
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Download file to see previous pages It therefore, gives a measure of responsiveness of quantity demanded depending on the changes of prices of the while the other factors are held constant. Price elasticity of the demand = Proportionate change in quantity demanded Proportionate change in price Price elasticity of the demand = Q1 – Q2 (Q1 + Q2)/ 2 P1 – P2 (P1 +P2)/ 2 Price elasticity of the demand = -305,000 +215,000 (-305,000 + 215,000)/ 2 Price elasticity of the demand = 35– 25 (35 – 25)/ 2 Price elasticity of the demand = 2/2 = 1 Since, the price elasticity of the demand is equal to one, the demand for the online have a unitary elasticity. This is because small changes in price undertaken do not affect the total revenue generated from the books demanded. As a result, an increase in the price further than the price of $ 35 will not affect the demand for the books. With a unitary elasticity, it is not business worth to undertake the business from its current state as the price increases will not affect the revenues generated (Mankiw, 2012). ...
+ 16,000 = $456,000 Marginal Cost More than often, the marginal cost is calculated, as the additional cost incurred when an extra one more unit of the is produced (Mankiw, 2012). With the equation total cost = 20 Q + 16000, the total cost goes up by $20 each and every time an additional good is sold. Therefore, we take the coefficient of Q which indicates the quantity demanded that gives a constant marginal cost is $20 per unit sold. Implications of Long Run and Short Run Period In most cases, companies face a lot of challenges while carrying out its operations in both the long run and short run period. This is because in the short run, one factor of production remains constant as it is always assumed to be in fixed supply. Therefore, the essential capital inputs for example, the cost of equipment remains fixed while the other costs incurred remain varied over time (Mankiw, 2012). More than often, the law of diminishing returns applies in the short run period, as more units of a variable input is added to the fixed amounts of equipment, which brings about the change in total output that rises at first and thereafter falls with time. Nonetheless, in the long run, all factors of production are considered to vary with the quantity of goods sold over time. In the long run, the output of the business will respond to changes in factors of production inputs that are usually referred to as returns to scale. This ranges from increasing, constant and diminishing returns to scale. Diminishing Marginal Returns and Economies of Scale Both the diminishing marginal returns and economies of scale are phases under which a product in the market has to undergo over time. Under the law of diminishing returns, an addition of one type of production input while the other ...Download file to see next pagesRead More
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