Producer Behavior and Price Theory Applications

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Table of Contents

Fixed Costs
Variable Cost
Marginal cost
Average cost
Elasticity of supply
Negative Income Tax
Works Cited

Fixed Costs

In the study of economics, fixed costs can be described as the expenditures that generally do not depend on the amount and value of goods and services that have been produced by a particular firm. On the contrary, this is a little bit different from variable costs which are volume-related. They are paid depending on the number of goods produced by the business. In the short run, fixed costs do not vary or change with an increase or decrease in the value of goods and services produced. They must be paid by the defined company. Examples of fixed costs include loans, insurance premiums, rent, among others (Underwood 212).

Variable Cost

Variable costs are expenses that are not stationary in nature. They always keep on changing in proportion to the main activities and objectives of the business. Sometimes, variable costs are also called normal costs (Underwood 212).

Marginal cost

This is the increase and decrease in the overall cost of production spent on the creation of a single unit of a given item. It is often calculated if the set goal has been achieved. Marginal costs include labor and the cost for the materials which can be used during the process (Conkling 78).

Average cost

The average cost is equal to the entire one divided by the number of goods produced. The number of goods produced is also called the output quantity. It is also equivalent to the summation of average variable cost which is also the total outcome divided by the output quantity. The average cost sometimes entirely depends on a particular phase. Often, the increment in production may be a little bit expensive or absolutely impossible within a given short duration (Conkling 78).

Elasticity of supply

This is the awareness or flexibility of producers to change in regard to the price of their goods and services. The general rule behind elasticity of supply can, for example, include an increase in the price of goods which leads to a rise in the supply of such goods and services (Conkling 78). It is measured in the ratio of proportionality of change according to the number of goods supplied to the given proportionate variation in the prices of production (Lipsey 66).

A short run is the duration of time whereby the quantity of at least a single input is fixed while the quantity of another set of inputs is different. The long-run is a period of time whereby the measure of all the contributions can fluctuate. In fact, no fixed time can be put down anywhere to distinguish the long and the short runs within the structure of any given company (Lipsey 66).

The company should accept and identify its goals, and at the time, this is achieved, the transactions of the cheap goods can be carried out. The cheap goods can easier be sold than the most expensive ones. The cheaper the goods the higher the demand is. Thus, the cheaper the price of goods the higher the demand for them is, so the cheap products should be sold first in order to create a demand for the expensive goods because there will be no option to run to (Lipsey 66).

In order to increase the demand for the expensive seats, the supply of the cheap ones should be greatly reduced or it can be totally eradicated.

Negative Income Tax

Negative income tax works on a yearly basis. For example, if there is a flat income rate of roughly 25%, the fixed government payment is $ 10,000 in one year. That particular individual who gets $ 4000 in one year will exactly pay $ 1000 as a tax fee and as a result reducing the earnings to $ 3000. A basic salary of $13000 will be got in turn (Nechyba 135). It gives a cash subsidy to the residence or social security administrators. As a matter of fact, it may help in paying their monthly income.

Works Cited

Conkling, Roger L. Marginal Cost in the New Economy: A Proposal for a Uniform Approach to Policy Evaluations. Armonk, N.Y.: M.E. Sharpe, 2004. Print.

Lipsey, Richard G, and C D. Harbury. First Principles of Economics. Oxford: Oxford University Press, 1994. Print.

Nechyba, Thomas J. Microeconomics: An Intuitive Approach with Calculus. Mason, Ohio: South-Western Cengage Learning, 2011. Print.

Underwood, Kerry. Fixed Costs. London: LexisNexis Butterworths, 2006. Print.

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