I need to respond to this classmate for a discussion.

In yourresponses, comment on at least two posts from your peers. Research and provide examples from the news of firms in perfectly competitive markets. Discuss with your peers how costs impact these firms' profitability.

Hi Everyone !

I really enjoyed this simulation. It was easy to understand and navigate. The first round I decided not to drive and for the remaining attempts I decided to drive. It was pretty much a game of chance since you never really knew how many drivers there would be until after, and the more drivers there were the less profit you would make. I didn't end up making an overall profit but it was nice to be able to see all of the different factors that played into this market such as the fixed cost and variable cost.

As a business owner I would only decide to enter a market if I were going to make a profit. I would know that it is profitable if the price of the good exceeds the average total cost of the production. If the revenue I would receive from producing comes out to less than its total cost of production than I would know that it is time to exit the market (Mankiw, 2021). This is the same concept in the simulation. It was ideal to drive when there were less drivers because the revenue would be higher than the cost to drive, leaving you with a profit. If there were more people driving it would not be worth it to drive that day because the revenue will come out to less than the cost it takes to drive leaving you in the negative or at zero.

When deciding how much to produce as a business it is important to consider marginal costs. It would be ideal to produce the perfect amount so that I would make the most profit possible. There are three general rules that help in reaching profit maximization, which include: (1) If marginal revenue is greater than marginal cost, the firm should increase its output. (2) If marginal cost is greater than marginal revenue, the firm should decrease its output. (3) At the profit maximizing level, marginal revenue equals marginal cost (Mankiw, 2021). So personally, when deciding how much to produce as a business I would want to make sure that my marginal revenue is equal to my marginal cost.

The impact of fixed costs changes production decisions in the short run vs the long run this is because fixed costs might be one amount, in the short run but that could change in the long run as you gain more flexibility as things change. The book used the example of Ford motors , the company in the short run ( span of a few months) cannot change the number of factories that it has. If they want to produce more cars they will have to hire more employees. So, in the short run this is considered a fixed cost. But if you look at it from a greater time span of a few years Ford can add new factories or even close down old factories, making it a variable cost (Mankiw, 2021). It depends on the perspective that you are viewing it from.

Reference:

Mankiw, N. G. (2021). Principles of economics (9th ed.). Boston, MA: Cengage Learning.