Changes

On a personal level, it is usually impossible to do two things at once.  Either you spend the next hour working on this course, or you spend it doing something else.  You could graph a production possibility curve for how you spend 24 hours each day.  It could be 8 hours sleeping, 1 hour exercising, 1 hour traveling to destinations, 3 hours cooking and eating, 6 hours studying, 1 hour relaxing, and 4 hours working at a job.  If you take an hour away from one activity, then you can add it to another.  Your production possibility curve would represent all the possibilities.

On a personal level, it is usually impossible to do two things at once.  Either you spend the next hour working on this course, or you spend it doing something else.  You could graph a production possibility curve for how you spend 24 hours each day.  It could be 8 hours sleeping, 1 hour exercising, 1 hour traveling to destinations, 3 hours cooking and eating, 6 hours studying, 1 hour relaxing, and 4 hours working at a job.  If you take an hour away from one activity, then you can add it to another.  Your production possibility curve would represent all the possibilities.

== Review: Types of Competition ==

== Review: ==

== The Law of Comparative Advantage ==

== The Law of Comparative Advantage ==

Suppose this is how much in resources it costs the Yankees and Mets to produce great pitchers or outfielders:

Suppose this is how much in resources it costs the Yankees and Mets to produce great pitchers or outfielders:

 

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Even though the Mets can produce outfielders more efficiently than the Yankees can, the Mets are better off spending all their resources developing pitchers and then trading with the Yankees to obtain outfielders.

Even though the Mets can produce outfielders more efficiently than the Yankees can, the Mets are better off spending all their resources developing pitchers and then trading with the Yankees to obtain outfielders.

==Review: Inputs==

==Review: Inputs==

Until now, when we discussed what a company does, we have usually talked about its output.  How many goods will it sell at what price?  The price elasticity of its demand, for example, looks at how demand for its output changes based on a change in its price.

Often we have focused on the OUTPUT of a firm.  How many goods will it sell at what price?  The price elasticity of its demand, for example, looks at how demand for its output changes based on a change in its price.

Marketing and sales also focus on the output of a company.  Marketing consists of advertising and promoting the goods.  Sales, the most important aspect of almost any company, consist of persuading customers to buy the company’s good or service.  The most valued employees of almost any company are its top salesmen and saleswomen.  They are the ones that bring in the money to the company.

Marketing and sales also focus on the output of a company.  Marketing consists of advertising and promoting the goods.  Sales, the most important aspect of almost any company, consist of persuading customers to buy the company’s good or service.  The most valued employees of almost any company are its top salesmen and saleswomen.  They are the ones that bring in the money to the company.

If we were to hold a dinner with a speaker, the output is the seats at the dinner and the sales effort consists of selling the spots and receiving money in return.  In a homeschool course, the output is the lectures and the sales effort consists of selling places in the course.  Colleges compete for students who can pay their tuition and fees.  Many colleges struggle because they have a difficult time attracting enough students to pay tuition.  In fact, very few new colleges have begun in the past twenty years.

If we were to hold a dinner with a speaker, the output is the seats at the dinner and the sales effort consists of selling the spots and receiving money in return.  In a homeschool course, the output is the lectures and the sales effort consists of selling places in the course.  Colleges compete for students who can pay their tuition and fees.  Many colleges struggle because they have a difficult time attracting enough students to pay tuition.  In fact, very few new colleges have started in the past twenty years.  The new ones have been more conservative than the older ones.

But there is another side to every company: its own inputs and the costs they incur.  For a homeschool dinner, the inputs include a speaker’s fee, a facility fee, and a catering fee.  For a homeschool course, the inputs include a teacher’s fee, perhaps a facility fee, and expenses for materials such as handouts or textbooks.  Lowering the costs of those inputs increases the profitability of the project.

But there is another side to every company: its own inputs and the costs they incur.  For a bus trip to D.C., the inputs are the cost of the buses and perhaps some food costs.  Lowering the costs of those inputs makes the project more affordable.

This is like offense and defense in sports.  The people on offense are the salesmen, trying to score points.  The people on defense are the buyers of inputs for the company, trying to keep the expenses down.  They are opposite jobs, often requiring opposite personalities.  Extravagant people make for better salesmen; frugal people are often better buyers of inputs for a company.  

This is like offense and defense in sports.  The people on offense are the salesmen, trying to score points.  The people on defense are the buyers of inputs for the company, trying to keep the expenses down.  They are opposite jobs, often requiring opposite personalities.  Extravagant people make for better salesmen; frugal people are often better buyers of inputs for a company.  

==Review: Monopsony==

==Review: Monopsony==

A monopsony means only one buyer.  A buyer holds a monopoly on purchases.

'''''A monopsony means only one buyer'''''.  Stated another way, one buyer holds a monopoly on all purchases.

The most obvious example of a monopsony occurs in a small town where there is only one employer.  If you want a job in that town, then your only place to work is at that company.  Of course, very few towns are actually limited to just one employer.  But for certain types of jobs, there may be only one employer, and it has a monopsony over those jobs.

The best example of a monopsony is when there is only one employer in a small, isolated town.  If you want a job in that town, then your only place to work is at that company.  Of course, very few towns are actually limited to just one employer.  But for certain types of jobs, there may be only one employer, and it has a monopsony over those jobs.

A monopsony is different from a competitively hiring firm in one significant way.  When a monopsony needs to hire an additional worker, then it has to raise the wages for all its workers at that level to hire an additional one.  Its marginal cost for paying for this factor (its marginal factor cost, or “MFC”) is more than the wage of the additional worker.  MFC equals the W of the additional worker PLUS the increased wage of all the other workers.

A monopsony is different from a competitively hiring firm in one significant way.  When a monopsony needs to hire an additional worker, then it has to raise the wages for all its workers at that higher level in order to hire an additional worker.  Its marginal cost for paying for this "factor" (labor), also known as its marginal factor cost (“MFC”), is more than the wage of the additional worker.  MFC equals the W of the additional worker PLUS the increased wage of all the other workers.

For example, if a monopsony can hire 10 workers at $6 or 11 workers at $7, then its MFC of hiring an 11th worker is $7 + (10 x ($7-$6)) = $17.

For example, if a monopsony can hire 10 workers at $6 or 11 workers at $7, then its MFC of hiring an 11th worker is $7 + (10 x ($7-$6)) = $17.

For a competitive firm, in contrast, MFC=W because it can hire all the workers it needs at the market wage, without causing the market wage to rise for all its workers.

For a competitive firm, in contrast, MFC=W because it can hire all the workers it needs at the market wage, without causing the market wage to rise for all its workers.

 

==Honors: Example==

==(Honors Only) Example==

Let’s start with this simple equation: Profits = Total revenue - Total cost

Let’s start with this simple equation: Profits = Total revenue - Total cost

Read, and reread as needed, the above lecture.  Then answer 6 out of 7 questions below, which use many concepts from the entire course:

Read, and reread as needed, the above lecture.  Then answer 6 out of 7 questions below, which use many concepts from the entire course:

1.  A ________________ is one and only one buyer in a market.

1.  A monopoly is one seller without an competitors.  What is a "monopsony"?

 

2.  One useful aspect of a production possibilities curve is to show how:

<br>(a) it is possible for a nation to increase production of all its goods at the same time.

<br>(c) a scarcity of resources causes a trade-off in goods produced.

Explain your answer.

2.  Define, in your own words, what a "production possibilities curve" is.

3.  What is the marginal factor cost of a monopsony when it increases is wage for 10 employees from $11 to $12 in hiring an 11th employee?  Show your work.

3.  What is the marginal factor cost of a monopsony when it increases is wage for 10 employees from $11 to $12 in hiring an 11th employee?  Show your work.

6.  Suppose you manage a monopoly, and want to know the short-run and long-run conditions for shutting down.  Explain them in terms of average variable cost (AVC), average total cost (ATC) and price (P).

6.  Suppose you manage a monopoly, and want to know the short-run and long-run conditions for shutting down.  Explain them in terms of average variable cost (AVC), average total cost (ATC) and price (P).

===Honors:===

===Honors:===

11.  Explain why the production possibilities curve is convex (opening downward like the top of a circle) rather than concave (opening upward like the inside of a bowl) or a straight line.

11.  Explain why the production possibilities curve is convex (opening downward like the top of a circle) rather than concave (opening upward like the inside of a bowl) or a straight line.