Changes

On the CLEP exam that some of you will take to earn college credit, 10–15% of the questions are devoted to decisions by a "Firm".  That term refers to the seller, which is alternatively describes as a "supplier", a "company", a "producer", a "manufacturer", a "store", or, mostly simply, a "firm".  A Firm makes decisions about how much to produce and how to try to earn a profit, such that revenue is in excess of costs.

On the CLEP exam that some of you will take to earn college credit, 10–15% of the questions are devoted to decisions by a "Firm".  That term refers to the seller, which is alternatively describes as a "supplier", a "company", a "producer", a "manufacturer", a "store", or, mostly simply, a "firm".  A Firm makes decisions about how much to produce and how to try to earn a profit, such that revenue is in excess of costs.

We are on the "supply side" when we discuss companies or firms.  It is on this side (rather than the demand or consumer side) where we have to decide how much you would produce if you were the President of a company.  Recall that microeconomics is about supply and demand.  When we are on the demand side, then we are discussing what you would buy as a consumer, and how much you would pay.  When we are on the supply side, we are considering what you would produce in managing a company.  Keep these concepts separate in your mind.

We are on the "supply side" when we discuss companies or firms.  It is on this side (rather than the demand or consumer side) where we have to decide how much you would produce if you were the president of a company.  Recall that microeconomics is about supply and demand.  When we are on the demand side, then we are discussing what you would buy as a consumer, and how much you would pay.  When we are on the supply side, we are considering what you would produce in managing a company.  Keep these concepts separate in your mind.

There are three subtopics in this field:

There are three key topics on this side of the "seller" or firm:

*the "short run" as compared with the "long run," and "economies of scale"

*the "short run" as compared with the "long run," and "economies of scale"

The average _____ always moves towards the marginal _____ as the relevant activity increases.  Average cost approaches marginal cost, and average product approaches marginal product.  Think about that, providing your own examples to convince yourself.

The average _____ always moves towards the marginal _____ as the relevant activity increases.  Average cost approaches marginal cost, and average product approaches marginal product.  Think about that, providing your own examples to convince yourself.

As President of your company, you do not want to be paying overtime wages to your employees for a long period of time.  By law, overtime wages are 1.5 times regular wages.  So when you pay overtime, you are paying 50% more than what you would pay if you could hire another worker.  It is inefficient to be paying overtime.  You do it only as a quick fix in order to supply more to satisfy an increase in demand.

As president of your firm, you do not want to be paying overtime wages to your employees for a long period of time.  By law, overtime wages are 1.5 times regular wages.  So when you pay overtime, you are paying 50% more than what you would pay if you could hire another worker.  It is inefficient to be paying overtime.  You do it only as a quick fix in order to supply more to satisfy an increase in demand.

In the “long run,” you maximize efficiency by making fundamental changes to your business.  If you own a professional baseball team, a short-run change to increased demand for tickets by fans would be to build temporary bleachers.  But the fans would prefer to pay more for permanent seats, and you would make more money with a larger stadium.  So the long-run change is to build an entire new stadium.  Many owners have done that.

In the “long run,” you maximize efficiency by making fundamental changes to your business.  If you own a professional baseball team, a short-run change to increased demand for tickets by fans would be to build temporary bleachers.  But the fans would prefer to pay more for permanent seats, and you would make more money with a larger stadium.  So the long-run change is to build an entire new stadium.  Many owners have done that.