Question:

Explain how firms can manage their costs in the long run, using microeconomics terms and concepts

My response:

Marginal Revenue Product of Labor is defined as the change in total revenue due to change in the number of workers. The formula that is used is = Change in Total Revenue/Change in Labor. As indicated in the table, Marginal Revenue Product exceeds marginal labor costs until 4 workers are employed. This means four workers should be employed. A company will employ workers as long as the marginal revenue product exceeds marginal labor cost for an additional unit of labor.If you hire more than four employees, the Marginal Revenue Product of Labor will significantly decrease for each employee over four and could potentially start to lose money.

The difference between fixed and variable costs is that fixed costs do not fluctuate in proportion to the output, whereas variable costs do. Your rent is a fixed expense because you have already agreed to the lease terms and cannot be changed in the near future. In the short term, your wages are also fixed since you agreed to pay your staff a specific amount that cannot be changed. Your cost for energy may be adjusted to meet your needs. Raw materials are variable costs and may increase or decrease depending on demand. Phone and internet bills are subject to change because you can use them more or less frequently depending on your needs. In the short term, a corporation is stuck with the fixed costs it has agreed to, regardless of how undesirable that may be. Everything is variable and may be adjusted to fit the needs of your business. You should consider the opportunity costs of your time in addition to the fixed and variable costs connected with operating the firm before making the decision to quit your day job.

You will have to make do in the short term with the cost arrangements you have already committed to, even if they are not optimal. Over a period of time, you can boost your income and decrease your expenses by negotiating for better terms and changing your spending habits. The importance of this factor cannot be overstated; if our variable costs are too high, you may not be ablet to turn a profit in the near future.Through cost optimization, you will be able to reduce costs and increase earnings over time. If you resigned your day job, you would have more time to focus on the company, but would also lose the income you were counting on to keep the lights on. In conclusion, you should consider the opportunity cost of your time in addition to the fixed and variable costs connected with operating the firm before making the decision to quit day job.

At the end of each year, your business has made a profit or loss of $7,000. Profits can be maximized at a manufacturing level of 10,000 units.Finding the point where marginal revenue equals marginal cost was used to determine the optimal amount of production to maximize profits. When 10,000 units are sold, the marginal cost is $73,000 and the marginal income is $80,000.

The optimal level of output is the one at which marginal revenue is equal to marginal expenditures.Marginal revenue is the incremental income from selling an additional unit. Simply said, the marginal costs are the sum of all of the additional costs incurred to make an extra unit. To determine the optimal amount of output that maximizes profits, we must first determine the point at which these two variables are equal.

A drop in marginal revenue may be seen in the Daily Production Cost Schedule at the 10,000-unit mark. This is because the unit price starts to decrease after this threshold is reached.When production reaches 10,000 units per month, the marginal cost likewise increases. This is because the marginal costs per unit is currently higher than usual because fixed expenses are being distributed over a smaller number of units.

This means that at 10,000 units of output, marginal revenue is equal to marginal cost. As a result, Daniel's business has an annual profit/loss of $7,000. Profits can be maximized at a manufacturing level of 10,000 units. I determined the optimal output by locating the point at which marginal revenue equaled marginal expenditures. When 10,000 units are sold, the marginal cost is $73,000 and the marginal income is $80,000.

You will see diminishing marginal profits on each additional unit produced after the first 10,000.That means the revenue increase from selling an additional unit will gradually decrease. At some point in the future, you will be in a situation where his marginal revenue is less than your marginal costs, and you will start to lose money.

You should go elsewhere than customer service if you are serious about increasing your financial security.You will be able to devote more time to the company after leaving your current work, you will have more time to devote to the company. You can also maximize your resources by renegotiating contracts and modifying your consumption pattern as needed.

Feedback received that I need assistance with:

Good start to the discussion in the email, please clearly explain what Daniel should do regarding machines and workers using and explaining economic terms and concepts. Please also answer the question: Other people are making more money than me in this industry, even though they have bigger operations. Why are they making more money if they have to pay more workers and buy more equipment? Please make sure to use and explain microeconomic terms and concepts in your discussion