Unit 5: Discussion Instructions The purpose of this discussion board is to

Unit 5: Discussion

Instructions

The purpose of this discussion board is to provide you with a forum to discuss your newly discovered economic concepts in light of current issues and real-world situations with others in the class. In essence, it is a practice ground for ensuring that your economic reasoning and foundation are secure. This portion of the course requires you to interact with your fellow classmates. Please address these discussion questions below. Make sure to analyze the questions using an “economic perspective.” In other words, utilize economics vocabulary in each of your posts. Respond to at least three classmates’ posts. Remember that content matters. You need to write more than “Great Job” or “I agree with you” to get full credit on your discussion responses.

Here are the Two Discussion Questions that I choose to respond back too.

Discussion Question Response 1 (RA)

Good Afternoon,

Part 1: Explain, in your own words, why profit maximization happens at the point where MR = MC, and not where MR is greater than MC. Refer to Figure 7.2. in the textbook. Should the 4th unit of output be sold? What about the 5th unit, 6th unit, 7th unit, 8th unit, 9th, or 10th unit? Use your understanding of MR = MC rule to explain.

MR=MC rule is known as the profit-maximizing guide and is applied only If producing is preferable to shutting down. MR=MC is the point where a company’s marginal revenue is equal to the marginal cost and is performing at maximum efficiency. When MR is greater than MC the production of the unit will need to increase, this will exceed MR and should not be produced. Production would add mort to costs than revenue, and profits would decline or loss would increase. MR=MC rule would be the most beneficial in unit 9 because the MR is the closest to being equal to MC. 

Part 2: If you are the manager of a perfectly competitive firm that is making a loss (TR < TC), would you decide to shut it down? Under what circumstances would you decide to operate an unprofitable business?

As a manager I can keep producing until the point where the price is more than the average variable cost, as the manager I can continue to operate even if the firm is not making any profit. If the variable costs exceed revenue I would have to shut down. 

Discussion Question Response 2 (MP)

Part 1: Explain, in your own words, why profit maximization happens at the point where MR = MC, and not where MR is greater than MC. Refer to Figure 7.2. in the textbook. Should the 4th unit of output be sold? What about the 5th unit, 6th unit, 7th unit, 8th unit, 9th, or 10th unit? Use your understanding of the MR = MC rule to explain.

If marginal revenue and marginal costs are the same, they will have had to cross each other out because it is the perfect output level without adding extra costs. Based on table 7.2, I think the best output would be unit 9. The goal in this is to maximize profit and it occurs when the 9th unit is sold. This being said, I believe that as soon as reach the total economic profit from unit 4 to unit 9, the company should sell.

Marginal revenue (MR) is defined as the change in total revenue when more units go a product is sold. To my understanding, Marginal Cost (MC) is the cost that rises by producing one more unit of a product.

Part 2: If you are the manager of a perfectly competitive firm that is making a loss (TR < TC), would you decide to shut it down? Under what circumstances would you decide to operate an unprofitable business?

If I was the manager, I would suggest that the firm should stay open if the price is greater or equal to its average variable cost. If the price is below the average variable costs, the firm should shut down because they will be in the negative unless they cut down on their variable costs. Even if the firm shuts down, they will still have to pay the fixed costs so hopefully, the revenue that they produce would cover the variable and the fixed costs.