Facebook is a form of social media that has over 2.23 billion monthly active users and has been rather controversial in light of recent events, including the unwarranted sharing of consumer information. Facebook, Messenger, and Whats App are currently, and have been, the top three IOS downloaded social networking apps. Of the three apps, one is Facebook, the other has direct correlation with the Facebook app, and Whats App is owned by Facebook.
Facebook dominates the market and is the largest social networking app, out there. YouTube is the second most popular app downloaded, but does not do the same thing, when compared to apps like Facebook and Instagram, which therefore can eliminate YouTube from being direct competition. Whats App and messenger are the most downloaded apps after YouTube, once again displaying the potential power that Facebook could have. There are other apps on the market such as Snapchat, but apps like these are independent apps that do not own multiple companies, unlike like Facebook does. Facebook and Google, a company that has been studied over the course of the past week, have similar market strategies in some ways. For example, Google has bought up many companies and made them a part of Google. Facebook, has also done this with apps such as Instagram which was bought for around 1 billion dollars. Additionally, Facebook has tried to buy the competition in which is Snapchat, but they are unwilling to sell. Overall, while there are apps like Snapchat that are in the same market, they do not hold the power that Facebook does, and therefore, there are no powerhouse companies to challenge Facebook. This is a characteristic of monopolistic competition.
In the world of internet advertising, Facebook and Google both partake in a large amount of online ads. Google generates a little over twice the ad revenue that Facebook does however, and in this scenario they are a competitor. It cannot be argued that Facebook has a monopoly on internet ads, but they do play a large role in them, as Facebook and Google are the biggest companies in this form of advertising.
In summary, Facebook exhibits qualities that a monopolistic companies holds, such as being the biggest player in the market, along with lacking substantial competition. However, as the do not have complete control over the market they can, by definition, not have a perfect monopoly over social networking. Additionally, when it comes to internet advertising, they are not a monopoly, but they could be considered to have a duopoly with Google.
Works Cited:
https://www.fool.com/investing/2018/04/17/is-facebook-a-monopoly.aspx
https://www.investopedia.com/terms/d/duopoly.asp
https://www.marketwatch.com/story/the-uncomfortable-question-zuckerberg-kept-facing-is-facebook-a-monopoly-2018-04-11
https://www.forbes.com/sites/timworstall/2017/05/10/google-and-facebook-are-dominant-but-not-monopolies/
Wednesday, October 31, 2018
Tuesday, October 30, 2018
The Monopoly on Standardized Testing
As students in AP Microeconomics (and likely at least a few other Advanced Placement classes), we all have experience with the College Board. The College Board is a nonprofit organization that controls the SAT, SAT Subject Tests, AP, and CSS/Financial Aid.
For most of these services, there are no generally accepted alternatives. While the ACT is a widely accepted alternative to the SAT, and IB is a lesser alternative to AP, the College Board unequivocally controls our educational opportunities and college application process. Many colleges require SAT Subject Tests or the CSS/Financial Aid profile to apply. In most schools, AP is offered without an IB alternative, and students are expected if not required by their teachers to take these tests, which are the only way to earn college credit in high school.
In particular, the AP program is becoming indispensable for college-bound high school students. Not only is it a way to earn college credit, but it has become a necessary method to show colleges that students are taking challenging courses and are ready for college-level coursework. At the same time, the usefulness of these exams is decreasing as many colleges have lessened or stopped giving credit for AP scores because the recognize the too-frequent emphasis on preparing for the test rather than actually learning, which is not equivalent to the experience of a college class.
The College Board, while providing services necessary to the college application process, does so at exorbitant prices. The cost of an SAT test is $64.50 with a nearly $30 late fee, and the cost of each AP exam is $94. When students receive their scores, especially for AP tests, they get a singular number without feedback or explanation. Then, students pay $12 per school to send scores. The College Board is taking advantage of the monopoly they have on education in order to profit off of students.
Another aspect of monopoly that the College Board illustrates is little incentive to improve. The processes of the College Board have remained relatively constant over time. Despite being a billion-dollar company, they do not take the time or use the resources to improve or even write new tests at times. For example, there was a lot of pushback when it was revealed that the August 2018 SAT was a reused test that was published online after being taken internationally in 2017.
Furthermore, the College Board does all of this while claiming to be a nonprofit, but with a surplus of nearly $60 million dollars, the company is far from it. The CEO made a salary in 2009 of $1.3 million, with 19 executives each making salaries greater than $300,000. These are generous compensations dealt out by a company that claims to be providing fair services to students to help them on their paths to college readiness.
As we take the AP Microeconomics test in May with $94 less in our pockets, I am sure we will all find ourselves to be manipulated by the monopoly that is the College Board. Hopefully, thinking of the prices we are paying for our exams can at least help us to remember the qualities of monopolized markets!
Works Cited:
https://www.youtube.com/watch?v=YDHO6e7hP7g
https://education.good.is/features/ap-classes-a-scam-or-smart-move
https://en.wikipedia.org/wiki/College_Board#Criticism
For most of these services, there are no generally accepted alternatives. While the ACT is a widely accepted alternative to the SAT, and IB is a lesser alternative to AP, the College Board unequivocally controls our educational opportunities and college application process. Many colleges require SAT Subject Tests or the CSS/Financial Aid profile to apply. In most schools, AP is offered without an IB alternative, and students are expected if not required by their teachers to take these tests, which are the only way to earn college credit in high school.
In particular, the AP program is becoming indispensable for college-bound high school students. Not only is it a way to earn college credit, but it has become a necessary method to show colleges that students are taking challenging courses and are ready for college-level coursework. At the same time, the usefulness of these exams is decreasing as many colleges have lessened or stopped giving credit for AP scores because the recognize the too-frequent emphasis on preparing for the test rather than actually learning, which is not equivalent to the experience of a college class.
The College Board, while providing services necessary to the college application process, does so at exorbitant prices. The cost of an SAT test is $64.50 with a nearly $30 late fee, and the cost of each AP exam is $94. When students receive their scores, especially for AP tests, they get a singular number without feedback or explanation. Then, students pay $12 per school to send scores. The College Board is taking advantage of the monopoly they have on education in order to profit off of students.
Another aspect of monopoly that the College Board illustrates is little incentive to improve. The processes of the College Board have remained relatively constant over time. Despite being a billion-dollar company, they do not take the time or use the resources to improve or even write new tests at times. For example, there was a lot of pushback when it was revealed that the August 2018 SAT was a reused test that was published online after being taken internationally in 2017.
Furthermore, the College Board does all of this while claiming to be a nonprofit, but with a surplus of nearly $60 million dollars, the company is far from it. The CEO made a salary in 2009 of $1.3 million, with 19 executives each making salaries greater than $300,000. These are generous compensations dealt out by a company that claims to be providing fair services to students to help them on their paths to college readiness.
As we take the AP Microeconomics test in May with $94 less in our pockets, I am sure we will all find ourselves to be manipulated by the monopoly that is the College Board. Hopefully, thinking of the prices we are paying for our exams can at least help us to remember the qualities of monopolized markets!
Works Cited:
https://www.youtube.com/watch?v=YDHO6e7hP7g
https://education.good.is/features/ap-classes-a-scam-or-smart-move
https://en.wikipedia.org/wiki/College_Board#Criticism
How the Apple Industry is Transitioning from Pure to Monopolistic Competition
It’s pretty clear why somebody would want to go from pure to monopolistic competition. You stop being a price taker and become a price setters. They would be able to produce at the price and amount where marginal cost equals marginal revenue, instead of where marginal cost meets demand. They can change more than they would at the fair market price, so they make more money. For the producer, this seems like a great idea. The problem is, how do they get there?
As we learned in class, what distinguishes monopolistic from pure competition is that the products are differentiated, instead of standardized. The question is, how is that happening in the apple industry? Some kinds of apples, like red delicious, granny smith, and pippin have existed for centuries, but, in the past few decades, there has been a rise of so-called designer apples. The most notable of these would probably be the honeycrisp. It was first cultivated in the 60’s in Minnesota and, today, can cost as much as 4 times as much as the red delicious.
We learned in class that, for monopolistic competition, marketing is crucial. The honeycrisp apple claimed to be everything the red delicious was not: crunchy, sweet, and with a thin skin, and the public loved it.
otable newer apples include the pink lady, from the 1970’s. What’s special about the Pink Lady is that the Pink Lady isn’t even a kind of apple. What we call Pink Lady are actually a sort called Cripps Pink, but the trademarked, recognizable name convinces consumers that they are buying a better quality apple, allowing them to charge more for it. This means that orchards selling the brand name become price setters, like producers in monopolistic competition.
Many seek to mirror the honeycrisp’s success. Going into the grocery store, you’re sure to see apples like the Kanzi, Sweet Tango, Jazz, Lady Alice, and Kiku. These are so called “Club Apples”. Similar to the Pink Lady, farmers have to pay a royalty to the developer of the apple for each tree they plant. This is usually around a dollar.
These apples are produced at a certain quantity, which is determined by the point where marginal cost and revenue meet, and sold at the price the consumer is willing to pay for that quantity. The consumer differentiates these apples from other kinds and, therefore, is willing to pay more. As advertising has created a following for some new types of apples, producers now operate under monopolistic competition instead of pure.
https://www.npr.org/sections/thesalt/2014/11/10/358530280/want-to-grow-these-apples-youll-have-to-join-the-club
Sunday, October 28, 2018
Is Google a Monopoly?
Over the years, Google has been inspected for potentially violating anti-trust laws, and many company want to take them down. Google is able to make companies "disappear" by placing their website on the 10th page of searches if they feel like it. Google knows that most people won't look past the 2nd page of searches. Many accused Google of using algorithms which hid companies that would be competitors to Google's services, even though Google denied these claims.
For most of us, Google is our default search engine, so most of us wouldn't go out our way to type in "Yahoo.com or Bing.com", when Google gives us the fast and accurate results we want. Although their techniques may not be harming the user, we may be missing out on an better experience that we didn't even know we had because Google doesn't want us to find it. For example, we learned about the website Foundem.com, which provides better results that are more tailored to what the user is searching. Of course, since Foundem would take away people from using Google searches, Google hid their website so that it would be hard to find, and therefore take away the competition.
However, Google is now able to control all aspects of our life from social media through Facebook, entertainment with buying YouTube, and finally our school life with google drive and classroom. Google is constantly collecting our data from every search we do, this allows them to produce advertisements that pop up on other websites we use like Facebook and YouTube. This, in-turn, brings in more money to their company, because each click on a Google owned website, makes Google a little richer.
Although Google is a part of our everyday lives, even in ways we may not realize, we are attributing to their growth and success every time we use its services, which may allow them to turn into a monopoly.
However, Google is now able to control all aspects of our life from social media through Facebook, entertainment with buying YouTube, and finally our school life with google drive and classroom. Google is constantly collecting our data from every search we do, this allows them to produce advertisements that pop up on other websites we use like Facebook and YouTube. This, in-turn, brings in more money to their company, because each click on a Google owned website, makes Google a little richer.
Although Google is a part of our everyday lives, even in ways we may not realize, we are attributing to their growth and success every time we use its services, which may allow them to turn into a monopoly.
The Developing Monopoly of Netflix
As we have learned in class recently, anti-trust laws have been created in our country to promote fair competition and to prevent the domination of a certain market by one company. Although these laws do exist, monopolies are still very prevalent in today's business world. Mr. Stewart has proved this point by showing us documentaries about Google and the NFL, demonstrating the power of a monopoly. As the world of online streaming develops, so will Netflix's monopoly.
Although Netflix is not a monopoly yet, continued growth of the company will lead to one. With the increase of online streaming numbers, companies such as Netflix have thrived. There is no longer a need for DVDs when watching a movie or TV show is as easy as clicking a button on your computer. As Netflix's business booms, others disappear. DVD stores such as BlockBuster have been forced out of business due to a lack of consumers. This is the first aspect of Netflix's monopoly. With the companies dominance, the industry allows very limited entry and exit, leading to DVD companies, as well as other streaming companies to be crushed. According to a study in December 2016, TechCrunch.com suggests that Netflix is in 75% of homes in the United States. With competition amongst other streaming services such as Hulu and Amazon Prime, 75% is a very large number. Keep in mind, this is an older study as well. Netflix's consumer number continues to grow larger and larger, and is being placed into more homes than ever before at a rapid pace.
As the company continues to profit, Netflix will be able to make other business ventures. In addition to the companies overall dominance of the market, Netflix has begun producing its own shows and movies, something other streaming services have yet to do. With the company making money at extremely high rates, it is only a matter of time before it starts buying other companies and streaming services. With this, its monopoly will continue to develop, crushing other big streaming services, and will eventually lead to the control of the market.
https://techcrunch.com/2017/04/10/netflix-reaches-75-of-u-s-streaming-service-viewers-but-youtube-is-catching-up/
Although Netflix is not a monopoly yet, continued growth of the company will lead to one. With the increase of online streaming numbers, companies such as Netflix have thrived. There is no longer a need for DVDs when watching a movie or TV show is as easy as clicking a button on your computer. As Netflix's business booms, others disappear. DVD stores such as BlockBuster have been forced out of business due to a lack of consumers. This is the first aspect of Netflix's monopoly. With the companies dominance, the industry allows very limited entry and exit, leading to DVD companies, as well as other streaming companies to be crushed. According to a study in December 2016, TechCrunch.com suggests that Netflix is in 75% of homes in the United States. With competition amongst other streaming services such as Hulu and Amazon Prime, 75% is a very large number. Keep in mind, this is an older study as well. Netflix's consumer number continues to grow larger and larger, and is being placed into more homes than ever before at a rapid pace.
As the company continues to profit, Netflix will be able to make other business ventures. In addition to the companies overall dominance of the market, Netflix has begun producing its own shows and movies, something other streaming services have yet to do. With the company making money at extremely high rates, it is only a matter of time before it starts buying other companies and streaming services. With this, its monopoly will continue to develop, crushing other big streaming services, and will eventually lead to the control of the market.
https://techcrunch.com/2017/04/10/netflix-reaches-75-of-u-s-streaming-service-viewers-but-youtube-is-catching-up/
Wednesday, October 24, 2018
The Soda Oligopoly
Soda brands Coca-Cola and Pepsi are key examples of an oligopoly.
As we learned in class, an oligopoly is a market form where a market or industry is dominated by a small number of large sellers. In the case of the sodas, they sell similar yet slightly different products. Also, there are very few sellers in an oligopoly and in this case, there are only the two drinks. Coke and Pepsi are similar in the way that they are both versions of cola, yet they slightly differ in the taste of their flavoring. Another factor which relates the two is their appearance, they both have a dark brown color to them. The drinks are considered perfect substitutes since they both have similar versions in taste and appearance. Seeing as they are perfect substitutes, the price elasticity of demand should be perfectly elastic. Yet what many fail to realize is that there are additional factors which result in a fairly elastic demand. If Coke was to increase its price, its customers aware of price change will choose to drink Pepsi instead since the two are so similar.
Tuesday, October 23, 2018
Monopolistic Competition vs. Monopoly
As we have been learning throughout the past couple of days in class, monopolies are a pretty rare occurrence that seems to have very few examples. A monopoly is the exclusive possession or control of the supply or trade in a commodity or service. This means that the firm in control of the supply is able to change the price as they are the sole seller with no close substitutes, so everyone who wants their product has to buy through them. While this type of market is pretty uncommon due to government protection and antitrust laws, monopolistic competition where companies sell similar products that can be differentiated from each other, meaning they aren't perfect substitutes, is extremely common.
There are many different examples of monopolies throughout history and even currently in the economy. The most common example of a monopoly is Standard Oil, where Rockefeller created a new type of oil using kerosene instead of the much more expensive whale oil so that people could afford to light up their houses at night. As Rockefeller invented this new oil, he was the only one selling it, meaning he had full power over the price and how much would be sold. While it benefited the consumer, due to cheaper oil pricing, other oil companies would suffer due to being bought out or destroyed by Standard Oil. The government eventually broke up Standard Oil into many different companies to prevent one single monopoly. Another more recent example of monopoly was with Microsoft. When personal computers were just coming around, Windows was the operating system for a vast majority of these computers. Microsoft abused this power of having pretty much the only operating system by making users use their browser and their software rather than anyone else's. This was against antitrust laws and they were taken into court for the issue. Finally, less apparent examples of monopolistic competition, instead of monopolies, are all around us, as this type of competition is defined by companies selling similar products that aren't perfect substitutes. This is apparent in markets like coffee shops, grocery stores, hotels, as well as many more. If you want to buy coffee, there are many different options so those coffee shops will change many different things to entice you to go to their coffee shop, which allows them to raise prices.
Overall, monopolies are exclusive control of a product, while monopolistic competition is when different sellers are selling a similar product, with differentiation so they aren't the exact same product. Monopolies are extremely rare due to government protections and antitrust laws, while monopolistic competition is all around us.
https://firstquarterfinance.com/34-monopolistic-competition-examples-around-world/
Reaganomics
Reaganomics
We have all heard the phrase Reaganomics. But what is this economic philosophy? Reaganomics is based on the tenet that the government is not the solution to economic problems, rather it is the problem and the economy will succeed when the government allows greater economic freedom. Acting on this, Reagan implemented numerous changes: lowered taxes, reduced union power, reduced federal regulation of industry, and closed numerous programs. The Reagan administration lowered the top tax rate from 70 to 50% in 1986. Congress additionally passed the tax reform act which allowed the income tax rate down to 28%. The thought process behind these actions was that these tax breaks and the extra money will lead rich people to spend and invest more in private enterprises. This creates new jobs and encourages people to work harder since they will keep their money. Numerous economists thought that lowering taxes would spur on economic growth, a theory known as trickle-down economics. In the beginning, there were signs of success. There was a consistent rise in GDP under Reagan era and the stock market boom. It was much easier for people to buy and merge companies. However, wages didn’t rise at all and these policies raised economic inequality. In addition, the top 1% controlled 40% of the nation’s wealth. This was two times larger than what it was 20 years ago. Additionally, the government spending actually went up and the national debt to 2.7 billion.
Although the thought process behind Reaganomics made sense: if one does not have to pay high taxes, then they will spend more on the economy. However, this economic movement has lead to greater income inequality. Currently, the top 1% owns more than the bottom 90% of the population in terms of wealth. This has meant that poverty is rising while the income for middle-class workers is not holding. Furthermore, Reagan’s economic policies were furthered by subsequent presidents. Clinton further deregulated wall street by taking away the Glass-Steagall act. While Bush Jr. gave further tax cuts to the rich. Even though Ronald Reagan has been idolized as a conservative model, his economic policies of trickle down economics and deregulation has been incredibly detrimental to our economy.
Can Monopolies Last Forever?
Monopolies have been around for many years, and the examples go as far back as the 1920s. There have been many examples of companies rising up to take over an entire industry, eliminating all their competition and essentially deciding the supply and demand graph for themselves. However, no monopoly can last forever. Eventually a product will come along that is more innovative or cheaper than you can provide customers, and your monopoly may crumble.
One of the biggest examples of this is the Kodak photography company, which at one point accounted for 85% of all film cameras sold and 90% of all film sold in the U.S. Kodak held a monopoly in the film market, and many people today still associate film cameras with the Kodak company. This monopoly however did not last, as the Kodak company missed the consumer switch to digital, losing a large part of their customer base. This company is an example of one of the many monopolies that once ruled an industry but were beat out because of innovation and changing consumer interests.
Monday, October 22, 2018
Pros and Cons of Monopolies in Standardized Testing
In class, we discussed the possible benefits and drawbacks of a monopoly, including specialization leading to efficiency as a pro and the producers becoming the price setters as a con. We talked about a few industries and the companies that dominate them, like cable and cell service providers, but I felt that one that should have been mentioned was standardized testing.
Now, I should differentiate between standardized testing like STAR and CAASPP tests, which are paid for by the school and evaluate the school, and standardized testing like the SAT and ACT, which the students pay for and which evaluate students.
So, school tests first. Pearson Education is the largest education company in the world. According to Fortune, it controls 60% of the American testing market. Pearson also makes textbooks and classes. It offers programs starting from kindergarten and going into higher education. It offers programs for the homeschooled. In this sense, it is like At&t, controlling multiple markets. I has a few competitors, like McGraw Hill Education and Houghton Mifflin Harcourt, but Pearson dominates the market, which might be why it is so disliked. Pearson rose to prominence thanks to the “No Child Left Behind” policy, which instituted benchmarks and requirements for students to reach. Their profits increased by 400% between 2000 and 2006. As mentioned earlier, monopoly can help with convenience and specialization but also can be bad for prices and quality. Instead of the tests becoming more holistic and fair, they have become more focused on reaching arbitrary benchmarks. This causes subjects to be crowded out of the curriculum as the school focuses on testing.
When we want to see the benefits of monopolies however, we can look towards student assessment testing. The College Board, I argue, is great at demonstrating some of the benefits a monopoly can have. I, for one, took both the SAT and ACT and am sending both scores. When I began sending out my scores, it was pretty annoying going back and forth between tabs to make sure I was completing both processes right. It would have been great for me if standardized testing had been.. standardized. What I think the greatest strength of the College Board is its convenience: I can get my SAT, subject test, and AP scores, my study books, and I can even use data from the College Board in some net price calculators. That’s not to say that College Board’s control of the market only has its benefits: like Pearson it is able to jack prices way up since most don’t have a lot of choice, however, its convenience is clearly a benefit of its near monopoly of the market.
Pros and Cons of a Monopoly
As we talked about today in class, there are
many industries in the US that are controlled by the top two to four
corporations that provide business in that market. From the monopolization of
pharmaceutical drugs to the internet searches we use today, there are many
different pros and cons for consumers that come with a monopolized market. One
interesting case is that of Internet Service Providers (ISPs), the companies
that provide a connection to the internet to people’s homes, such as Comcast or
AT&T.
In the case of ISPs, there isn’t nearly as much
of a monopoly on service across the country, like Google might have on
searches. However, what they do have is nearly a complete monopoly in specific
regions throughout the country. To put this into perspective, there are many
companies that provide internet to people across the country, but despite this,
around 85% of the American population only has a choice between 1 or 2
different ISPs in their region. The monopoly of ISPs has been discussed a lot
more recently due to changes in the regulation of ISPs back in 2017, which
leads to an interesting discussion of the pros and cons of a monopoly on the
internet.
Pros: With the internet being sent through wires
to every household, it could get very messy if all 10 houses on a block wanted
to get their internet from a different ISP, meaning that there might have to be
9 extra wires going through the poles when only one would be necessary if one
company was providing internet to all 10 of those houses. Also, being able to
have monopolies in specific areas incentivizes ISPs to expand outwards into
other areas to provide internet to people that may not currently have a
connection if they are allowed to keep a monopoly there.
Cons: On the other hand, with a monopolized
area, ISPs are theoretically able to do what they want to their customers
internet connection without big repercussions. Since they have a monopoly in
that area, it would be hard to impossible for a customer to switch to a better
ISP. This disincentivizes improvement of their network as they will not gain
more customers by improving their connections (since everyone already gets
internet from that company), but will not lose any customers by having slow
connections since it’s pretty much impossible to live without internet in
today’s world. Also, due to not having competition, ISPs are allowed to be a
price maker.
-Robert Gee
-Robert Gee
Pure Competition of Agriculture
The documentary we watched in class described how Minecraft was an example of pure competition. However, there are broader market examples of this theory as well. One long lasting example of pure competition is the Agriculture market, primarily of corn, wheat and soybeans. In order for market to be considered purely competitive it must have a large number of producers supplying a standardized product, easy entry and exit, and have the market prices determined by the consumer.
The Agriculture market is a great example of this because there are firms or individuals producing staple products with set guidelines throughout their production. This allows all of the corn, wheat, and soybeans that are produced to be more or less the same. Also, this market has easy entry and exit because there is a a low barrier for businesses entering the business. Also, firms could stop producing their good anytime, and it would not affect the overall production of the market because there are so many other producers.
In this industry, the suppliers have no influence over the market price because it is determined by the consumer's demands. For example, during the Great Depression, consumer's income was too low to buy standard amounts of corn and wheat products, which led to a surplus in the industry. Firms could not control this because there was so much of the product that if providers lowered the price, the Agricultural market would crash. Prices of corn and wheat are also standardized because there is typically a set price, but that may be increased for consumers by export taxes.
The Agriculture market has been an important part of the country's economy for a long time and will continue to be. This is because it is responsible for staple products that are an essential good for America and exports to other countries so this purely competitive market must continue.
The Agriculture market is a great example of this because there are firms or individuals producing staple products with set guidelines throughout their production. This allows all of the corn, wheat, and soybeans that are produced to be more or less the same. Also, this market has easy entry and exit because there is a a low barrier for businesses entering the business. Also, firms could stop producing their good anytime, and it would not affect the overall production of the market because there are so many other producers.
In this industry, the suppliers have no influence over the market price because it is determined by the consumer's demands. For example, during the Great Depression, consumer's income was too low to buy standard amounts of corn and wheat products, which led to a surplus in the industry. Firms could not control this because there was so much of the product that if providers lowered the price, the Agricultural market would crash. Prices of corn and wheat are also standardized because there is typically a set price, but that may be increased for consumers by export taxes.
The Agriculture market has been an important part of the country's economy for a long time and will continue to be. This is because it is responsible for staple products that are an essential good for America and exports to other countries so this purely competitive market must continue.
Sunday, October 21, 2018
Revenue, Economics Cost, and Profit
Unlike all of the students in Mr. Stewart's first-period class, many Americans lack a basic understanding of economics in terms of revenue, economic cost, and profit. There are many people who believe that in order to have the best company, all you have to do is maximize revenue-- regardless of how much money you spend, you just want to make as much as possible. This, however, is not the case. In order for companies to succeed, their long-term goal must be maximizing profit. Profit is defined as revenue minus economic cost.
Revenue is the total amount of money that a company earns via sales. A general formula for revenue (for a specific product, many companies sell multiple products) is the number of goods sold multiplied by the price of each individual good. Two important terms to know when considering revenue are average revenue and marginal revenue. Average revenue is the revenue earned per unit sold, while marginal revenue is the additional revenue earned (or sometimes lost) from selling one additional unit of a good.
Economic cost is slightly more complicated, so we split it into two categories: explicit costs (or accounting costs) and implicit costs (or opportunity costs). Economic cost is the sum of implicit cost and explicit cost. Explicit cost is the cost that is paid directly to others in running your business: such as wages or rent cost. Explicit cost is sometimes called accounting cost because it is the cost that is accounted for on paper. Implicit cost is a cost that has already occurred but is not accounted for on paper. An example of implicit cost is the amount of hours that an owner allocates toward one task, rather than allocating those hours elsewhere. Likely, this sounds familiar-- it probably reminds you of opportunity costs. Thus, implicit cost is sometimes called opportunity cost.
Revenue is the total amount of money that a company earns via sales. A general formula for revenue (for a specific product, many companies sell multiple products) is the number of goods sold multiplied by the price of each individual good. Two important terms to know when considering revenue are average revenue and marginal revenue. Average revenue is the revenue earned per unit sold, while marginal revenue is the additional revenue earned (or sometimes lost) from selling one additional unit of a good.
Economic cost is slightly more complicated, so we split it into two categories: explicit costs (or accounting costs) and implicit costs (or opportunity costs). Economic cost is the sum of implicit cost and explicit cost. Explicit cost is the cost that is paid directly to others in running your business: such as wages or rent cost. Explicit cost is sometimes called accounting cost because it is the cost that is accounted for on paper. Implicit cost is a cost that has already occurred but is not accounted for on paper. An example of implicit cost is the amount of hours that an owner allocates toward one task, rather than allocating those hours elsewhere. Likely, this sounds familiar-- it probably reminds you of opportunity costs. Thus, implicit cost is sometimes called opportunity cost.
The Nobel Prize in Economic Sciences
The Oscars, Grammys, Emmys, and others are seen as the pinnacle of achievement for artists across the globe. Awards like these attempt to encapsulate the very best in the fields they award. But for economics, for academics, the ultimate prize for discovery is the Nobel Prize in Economic Sciences, better known as the Nobel Prize for Economics, which is given to the most significant advancement in the study and practical use of economics in a calendar year.
In 1968, the prize was introduced. The Sveriges Riksbank donated to the Nobel Foundation and started the prize in the memory of Alfred Nobel, the founder of the Nobel Prize. And after the very first was handed out in 1969 to Ragnar Frisch and Jan Tinbergen for work in econometrics, the prize has been given out every single year to help push innovation across the globe.
This year, the prize was awarded to William Nordhaus and Paul Romer for their advancements in connecting climate change and technological advancements with economics. More specifically, Romer was able to build models to determine what sorts of market conditions facilitate innovation, something unfathomable just a few decades ago. His work in explaining how policy committed to the resources of technology can facilitate the growth and new forms of tools we use in our lives.
Speaking more towards the history of William Nordhaus, it was his own idea to begin carbon taxation, the idea that businesses would disincentivized for emitting more carbon dioxide into the atmosphere. Through his work in explaining climate change and economic policy, he has been able to put together a more focused message that has helped nations in Europe regulate emissions, even if the US still has failed to implement these suggestions.
In either case, the very existence of this prize in itself is an incentive. The prize is $1 million. Even though these professors may have the resources necessary to be able to pursue whatever studies they want, the prize can become a way to push economists to find new ways to help the world, and that is what's most important.
Sources:
https://www.washingtonpost.com/business/2018/10/08/two-americans-win-nobel-prize-economics/?noredirect=on&utm_term=.e7e517eb5ed3
https://www.nobelprize.org/prizes/economic-sciences/2018/summary/
https://www.nobelprize.org/prizes/economic-sciences/
Friday, October 19, 2018
SoundCloud: Rapper Pure Competition
In the 1990s, hip hop was the punk rock of music. No older people attempted to respect the genre, both for its explicit lyrics and violent images. However, as the scene began to grow, more and more record labels began to take notice, and teams like Interscope and Cash Money began to form. What these labels gave to hip hop artists was an outlet to continue to produce their content at the highest level. However, there was a catch: the labels were the filter. They were the ones who decided what would be pushed to the public and what would remain unknown.
But, something changed in the mid 2010s. A music streaming site called SoundCloud enabled artists to upload their music for free to a distribution channel of millions of users. With a simple mic and Fruity Loops, even GarageBand, anyone could become the next big up and coming rapper. And with this platform, hip hop developed into a pure competition market. Now, the consumers would have the power to drive what's considered hot and what's considered trash. They could determine whether rapper A could be better than rapper B, and began discussions as to how much someone could truly thrive in this new hip hop economy.
The most successful SoundCloud rapper, who took off while he was in jail, was the late Janseh Onfroy, better known as "XXXTentacion." Through the platform, he was able to take his song "Look at Me" and turn it into a multiplatinum-selling record. Other rappers also took the industry by storm, like Lil Pump and the late Lil Peep. Artists that have been perceived as so-called "introverts" that could not make it into the industry because they were not tough enough were able to thrive in this new age of hip hop because consumers appreciated their music for what it was, and appreciated the artists for who they were.
But just like in any pure competition market, there are always standouts and there are always people who never made it as far. For every Lil Pump, there are thousands of other rappers attempting to make it. That's just a natural behavior of a pure competition market. Those who rise to the top are doing so as a result of consumer demand. And especially in today's music economy, it isn't just about being talented; you must bring the persona, the character that people want to ensure engagement with your audience. That's how someone succeeds in the rap game today.
Just like in the past, there are still culture and content curators just like in the 2000s that help dictate what is cool in the market. But ultimately, it is up to the consumers, the people purchasing and streaming the music, in many cases for little to no cost. This has made hip hop, and music overall, more competitive in the age of streaming. With consumers making the ultimate decision on what's cool, artists can now focus on themselves and becoming greater creators.
Sources:
https://www.complex.com/music/2018/09/soundcloud-rappers-you-should-know/
https://www.afr.com/lifestyle/arts-and-entertainment/music/soundcloud-rappers-this-is-who-your-teens-are-listening-to-20180809-h13r3p
How Youtube Creates a Platform for Pure Competition
Pure competition is not something we come across very often. In fact, it's extremely rare for markets to experience pure competition. However, the app/site Youtube has created a pure competition market for its users. We know that pure competition is when a market has a large number of sellers, a standardized product that does not differ much, and easy entry and exit to the market. Additionally, the suppliers are price takers. Youtube's platform causes the users to follow these guidelines. Youtube has hundreds of millions of users who upload videos, making them all suppliers. This shows how the Youtube market has a large number of sellers. Additionally, Anyone who has a Google account can upload a video, making it extremely simple to get into the market. As long as one can shoot some sort of video, then upload it to the site, they can enter this market. Also, Youtube only allows videos to be shared, which means the product is the same for all the users. One can use youtube to promote different products, but the only product that the Youtube platform supports is videos. Finally, the amount of revenue a creator gains of their Youtube content is related to how many people watch the video. The main source of revenue comes from ads that are often required to be viewed before a video is played. This means the more views a video gets, the more views an add gets and the more the supplier is paid. This means the suppliers have no control over the price, and its really up to the consumers to how much the suppliers are paid for the video. By looking at youtube in this perspective, we can see how it becomes a close to perfect example of real world pure competition. It brings us to wonder if Youtube planned to create a perfect competition within its platform, or their goal was only to create a video sharing website. Either way, the success of the website shows that Youtube is a thriving company, and is the new TV for kids of this century
Thursday, October 18, 2018
Examples of Pure Competition: FIFA
Throughout the last couple of weeks, we have been covering the abstract concept of pure competition. This concept is something that, unknowingly, we are part of in everyday life. According to the textbook, pure competition is a "market structure in which a very large number of firms sell a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition (meaning product is identical); a market characterized by a very large number of buyers and sellers.
This type of market is applicable to many markets around us on a daily basis, however, it was a big part of many of our childhoods, in the markets of video games that involve trading, such as FIFA, Madden, or Counterstrike. Using FIFA as an example, players would attempt to trade to gather the best team they possibly could, and collecting in-game currency, or coins, at the same time. In this market, players could list up real-life athletes in the form of FIFA cards that other players could buy for a certain amount of coins. Any player could sell FIFA cards whenever they wanted and stop just as easily too, checking off the "easy entry" part of the definition. At the same time, the cards are all identical, meaning there is no reason besides price to buy one card or another, checking off the "no nonprice competition" (or standardized product). Finally, the seller has no control over the price they are selling at, as buyers will never buy too high for a certain card, and selling too low will result in a marginal loss, checking off the "no control over price" part of the definition. Using the definition of a pure competition market, we can see that video game trading markets are almost completely pure competition markets.
However, many of us cannot relate to playing games like FIFA for hours on end trying to build the best possible ultimate team, which makes it difficult to believe there are pure competition markets around us. Using the definition of pure competition discussed before, we can see that these types of markets are really all around us. For example, on YouTube, anyone can upload videos whenever (easy entry), the product is purely video content (standardized product), and the seller uploads videos to be seen only at the price of time (no control over price). Overall, there are many other markets like this all around us, such as agricultural products and the video game industry as discussed in class, that we should always be aware of so we have an understanding of the markets that we are a part of.
This type of market is applicable to many markets around us on a daily basis, however, it was a big part of many of our childhoods, in the markets of video games that involve trading, such as FIFA, Madden, or Counterstrike. Using FIFA as an example, players would attempt to trade to gather the best team they possibly could, and collecting in-game currency, or coins, at the same time. In this market, players could list up real-life athletes in the form of FIFA cards that other players could buy for a certain amount of coins. Any player could sell FIFA cards whenever they wanted and stop just as easily too, checking off the "easy entry" part of the definition. At the same time, the cards are all identical, meaning there is no reason besides price to buy one card or another, checking off the "no nonprice competition" (or standardized product). Finally, the seller has no control over the price they are selling at, as buyers will never buy too high for a certain card, and selling too low will result in a marginal loss, checking off the "no control over price" part of the definition. Using the definition of a pure competition market, we can see that video game trading markets are almost completely pure competition markets.
However, many of us cannot relate to playing games like FIFA for hours on end trying to build the best possible ultimate team, which makes it difficult to believe there are pure competition markets around us. Using the definition of pure competition discussed before, we can see that these types of markets are really all around us. For example, on YouTube, anyone can upload videos whenever (easy entry), the product is purely video content (standardized product), and the seller uploads videos to be seen only at the price of time (no control over price). Overall, there are many other markets like this all around us, such as agricultural products and the video game industry as discussed in class, that we should always be aware of so we have an understanding of the markets that we are a part of.
South African Recession
South Africa’s economy is officially in a recession. A recession is defined as two consecutive quarters of economic decline. South Africa had a 2.2% contraction in the first quarter and a 0.7% contraction in the second quarter. These two contractions mean that there will be less money coming into the country than in the past. This causes companies to make less profit, employ fewer people and raise overall unemployment. The last time South Africa was in a recession was during the global financial crisis in 2009. It is believed that the main reason for the current recession is Jacob Zuma’s, the previous president, corruption. Due to the mismanagement and improper allocation of funds the agriculture, transport, trade, and fishing industries have faced strong declines. For example, a drop in production of field crops has lead to a 37% decline in the first quarter and a 29% decline in the second quarter. Furthermore, a decrease in motor vehicle parts and accessories lead to the decline in transport. There are multiple views on how one can get South Africa out of the recession. Duma Gqubule, the founding director at the Center for Economic development and transformation, believes that the government should first implement an emergency cut in interest rates, of 200 rands, to stimulate the economy. Secondly, it must add a fiscal stimulus package. Similarly, Isaah Mhlanga, a macroeconomist for Rand Merchant Bank, argues the government must make South Africa as business friendly as possible so that they can increase the level of investment, improve economic growth, and raise general employment. In an attempt to curb the recession the current South African President, Cyril Ramaphosa has procured an R370 billion (24.7 billion USD) economic stimulus package from China. However generous this may seem, many critics argue that this is a form of "debt colonialism".
Wednesday, October 17, 2018
Proposition 10: Rent Control
With election season approaching once again, many of the issues we will be voting on next month are being discussed once again. Especially in the high-demand housing market of the Silicon Valley, one of the most widely debated propositions on the California ballot is Proposition 10.
Prop. 10 is an issue surrounding whether or not to repeal a state law that restricts the scope of rent control policies. The verbiage is confusing, but in simpler terms, there is currently a law that limits the rent control policies that cities can impose. By voting NO, a person votes to continue limiting rent control. By voting YES, a person votes to allow cities to increase rent control measures.
Living in the Bay Area, we can clearly see the housing crisis around us taking effect. People who have lived in their houses for years are being outbid and forced to move as property values increase exorbitantly. Voting yes on Prop. 10 protects tenants from unfair rent increases. As we see families forced to leave and homelessness become an epidemic, it seems like an obvious choice to enact rent control to prevent unwanted eviction.
However, the issue is not that simple. The extremely high market prices are determined by supply and demand. Because so many people want to live in the Bay Area, the demand is extremely high while the supply is not that high because there isn't much available land. This drives the prices up. Though this is unfortunately extremely difficult for all but the financially elite to afford, it is simply the price dictated by the open market. With this arrangement, renters make money as dictated by the market. When rent control is enacted, these renters cannot sell at market price, so they are not making the profits they otherwise would. If the rent control is extreme enough, they may be operating at a cost higher than what they are paid. In this instance, they are actually losing money by renting. With a deficit, there is no incentive to rent anymore, so renters will simply leave units empty or knock down the building and rebuild, where the building is subjected to the same rent controls.
Obviously, this does little in the long run to fix the housing crisis. It only lessens supply and pushes the issue farther down the road. However, pushing the issue farther down the road helps tenants in the short run, and eventually, property values will decrease as the Silicon Valley housing market bubble eventually bursts. In this case, pushing the issue down the road a few years will help.
Regardless of how you choose to vote (if you can), it is important to understand the arguments for both sides of this issue, which make more complex economic arguments than those that are often brought up when discussing rent control.
http://voterguide.sos.ca.gov/propositions/10/
Prop. 10 is an issue surrounding whether or not to repeal a state law that restricts the scope of rent control policies. The verbiage is confusing, but in simpler terms, there is currently a law that limits the rent control policies that cities can impose. By voting NO, a person votes to continue limiting rent control. By voting YES, a person votes to allow cities to increase rent control measures.
Living in the Bay Area, we can clearly see the housing crisis around us taking effect. People who have lived in their houses for years are being outbid and forced to move as property values increase exorbitantly. Voting yes on Prop. 10 protects tenants from unfair rent increases. As we see families forced to leave and homelessness become an epidemic, it seems like an obvious choice to enact rent control to prevent unwanted eviction.
However, the issue is not that simple. The extremely high market prices are determined by supply and demand. Because so many people want to live in the Bay Area, the demand is extremely high while the supply is not that high because there isn't much available land. This drives the prices up. Though this is unfortunately extremely difficult for all but the financially elite to afford, it is simply the price dictated by the open market. With this arrangement, renters make money as dictated by the market. When rent control is enacted, these renters cannot sell at market price, so they are not making the profits they otherwise would. If the rent control is extreme enough, they may be operating at a cost higher than what they are paid. In this instance, they are actually losing money by renting. With a deficit, there is no incentive to rent anymore, so renters will simply leave units empty or knock down the building and rebuild, where the building is subjected to the same rent controls.
Obviously, this does little in the long run to fix the housing crisis. It only lessens supply and pushes the issue farther down the road. However, pushing the issue farther down the road helps tenants in the short run, and eventually, property values will decrease as the Silicon Valley housing market bubble eventually bursts. In this case, pushing the issue down the road a few years will help.
Regardless of how you choose to vote (if you can), it is important to understand the arguments for both sides of this issue, which make more complex economic arguments than those that are often brought up when discussing rent control.
http://voterguide.sos.ca.gov/propositions/10/
Tuesday, October 16, 2018
Monopolistic Car Competition
The automotive industry reflects a monopolistic competition. Each firm within the car market (Toyota, Audi, Honda, etc.) sells different cars and compete with each other for market dominance. Japanese, German and American automakers mainly dominate the automotive industry today.
Factors contributing to the car market being so monopolistically competitive include the fact that there are many firms within the market and there are automakers worldwide. By incorporating quality and brand reputation, automakers distinguish their specific cars from others. Also, there are few barriers to entry and exit in this market, therefore new automakers often appear and old ones leave in the same fashion. Car firms have some control regarding the overall price of their products, yet no company has complete dominance over the car market.
There are several qualities to take into consideration when you break apart a car. First is reliability, you want to ensure that what you drive will not break down in its first week on the roads. Second is style, aesthetically pleasing cars attract a wider audience and make your vehicle look better than your competitors. Third is fuel efficiency, the more efficient your car is as opposed to your competitors, the more you will attract an audience o those willing to sane money. Finally, price is a big factor taken into consideration when someone is willing to buy a car. The car with the best price package will attract the most customers.
How car firms use advertising to promote their product is important as well. Good advertising can highlight the best features of your vehicle while also making it look superior to your competitor's car.
Evolution of Music Streaming
Napster introduced the technology that has been adopted by current streaming services such as Spotify and Apple Music. Although Napster created controversy in the music industry, it was necessary for current forms of music streaming and downloading.
Currently, the two major forms of streaming music are Apple Music and Spotify. While you are technically "downloading" the music using your phone's storage, the music is only accessible through the app and content cannot be transferred between users. This is unlike Napster where the user had the music available to use in any form. These current producers also have relationships with the music industry and record companies which allows them to have artist's music on their application to provide to their users. For example, Spotify must pay the holder of music rights anywhere from $0.006 to $0.0084 per stream, where Napster did not compensate artists at all for using their music
Currently, the two major forms of streaming music are Apple Music and Spotify. While you are technically "downloading" the music using your phone's storage, the music is only accessible through the app and content cannot be transferred between users. This is unlike Napster where the user had the music available to use in any form. These current producers also have relationships with the music industry and record companies which allows them to have artist's music on their application to provide to their users. For example, Spotify must pay the holder of music rights anywhere from $0.006 to $0.0084 per stream, where Napster did not compensate artists at all for using their music
The biggest difference between Napster and current streaming sources, beside them being legal, is the price. Napster missed a huge profit opportunity by allowing their technology to be free instead of charging consumers a small baseline fee. Napster made money through investors, who put in millions into their company, for seeing the expansions of the company. With Spotify, users have two options in the app: a free subscription, or a premium subscription of $9.99 a month. The free subscription includes advertisements every 5-10 songs, which is one way Spotify makes money. The other way it brings a profit is though its premium subscription. The benefits include no adds, unlimited skips, and downloading an unlimited number of songs. That means, in a month, the consumer may download two albums only for paying the $9.99 subscription fee, instead of paying $15 per album, or $30 total if they were to buy the CD.
Apple Music is similar where a subscription user can download as many songs as they wish in a month, However, without the subscription, Apple users must pay $1.29 for a single song, and if they want the whole album, it is is usually the same price as if they were buying the physical CD.
Although Napster's had a great fall primarily from allowing unlimited access to downloading songs and therefore hurting many music artists, they created the music streaming idea and technology that is used by millions today.
Apple Music is similar where a subscription user can download as many songs as they wish in a month, However, without the subscription, Apple users must pay $1.29 for a single song, and if they want the whole album, it is is usually the same price as if they were buying the physical CD.
Although Napster's had a great fall primarily from allowing unlimited access to downloading songs and therefore hurting many music artists, they created the music streaming idea and technology that is used by millions today.
Sunday, October 14, 2018
Increasing Minimum Wage
The minimum wage has been a discussion topic since the bar was first set in 1938. Since that point, we have seen an increase in the minimum wage as the cost of living has drastically increased. Yet, the increase in wages has also led to the further increase in the cost of living. In what appears to be an endless cycle of constantly increasing prices, is raising the minimum wage really the most effective way to decrease the poverty gap.
For many cities around the Bay Area, starting January 1st, 2019, the minimum wage will be increasing from $13.50 to $15.00. On the surface level, that seems like a great idea. As the cost of food, services, and housing has continued to climb for the past few decades, it is important that individuals are able to afford basic amenities. Yet, in order for businesses to pay their employees at this new rate, where does the money come from?
The answer is simple: increased prices. The only way businesses can afford to pay all of their workers at the new minimum wage, they have to increase the price of the products they are selling or risk losing large amounts of money. Currently, I work at True Food Kitchen in Palo Alto, where the minimum wage is $13.50. However, just last week, along with the shift in seasonal menu items, the price of all drinks and foods increased by some amount. The managers made it very clear that the increase in food prices was to compensate for the increase in minimum wage in two months.
Let me just summarize exactly what is happening. In order for us to be able to live in this expensive location, we have to get paid more for the same amount of work time, which only increases the prices of the things we need to buy so businesses don't lose money. The endless cause and effect of increasing wages and costs only push aside the problem, and even make it worse, rather than trying to solve it. So it really is time to think, is increasing the minimum wage really the best way to reduce poverty and make society more affordable?
For many cities around the Bay Area, starting January 1st, 2019, the minimum wage will be increasing from $13.50 to $15.00. On the surface level, that seems like a great idea. As the cost of food, services, and housing has continued to climb for the past few decades, it is important that individuals are able to afford basic amenities. Yet, in order for businesses to pay their employees at this new rate, where does the money come from?
The answer is simple: increased prices. The only way businesses can afford to pay all of their workers at the new minimum wage, they have to increase the price of the products they are selling or risk losing large amounts of money. Currently, I work at True Food Kitchen in Palo Alto, where the minimum wage is $13.50. However, just last week, along with the shift in seasonal menu items, the price of all drinks and foods increased by some amount. The managers made it very clear that the increase in food prices was to compensate for the increase in minimum wage in two months.
Let me just summarize exactly what is happening. In order for us to be able to live in this expensive location, we have to get paid more for the same amount of work time, which only increases the prices of the things we need to buy so businesses don't lose money. The endless cause and effect of increasing wages and costs only push aside the problem, and even make it worse, rather than trying to solve it. So it really is time to think, is increasing the minimum wage really the best way to reduce poverty and make society more affordable?
Thursday, October 11, 2018
Pure Competition: Minecraft YouTubers
Recently in class, we have been discussing the concept of pure competition. Mr. Stewart acknowledged that, for the most part, this is an abstract concept. Rarely does it ever actually occur in the real world. There are 3 key points that must be addressed when addressing whether or not a market is in pure competition:
1. A large number of producers must be selling the product (we can define large as 10+, but as this is an abstract concept, it doesn't really need to be strictly defined. The point is, there are a lot.)
2. The product must be standardized. A standardized product is one that does not differ greatly between what each of the producers is selling.
3. There must be easy entry and exit from the market. This means that the market must not require any surplus of money, resources, etc to become involved with the industry and sell the product and also it must be simple to leave the market.
So, let's think about Minecraft YouTubers and pure competition, one rule at a time. First, are there a large number of YouTubers who upload Minecraft videos? Maybe more than 10? There are thousands, at least. Second, is the product standardized? Well, let's be honest: they're all Minecraft videos. Yes, the game mode may differ in content, but overall the product is similar between each "producer" or YouTuber. Finally, is there simply entry and exit into the market? All that you need is a computer, which most Americans already have, a YouTube account, which comes with a Google account, which most Americans already have, and a recording software, which can be downloaded for free. And say you wanted to exit the market-- that too would be extremely easy, all there is to do is stop posting videos!
In conclusion, although pure competition is an abstract concept, we can clearly see its applications in a market that many of us have unknowingly been consumers in since a very young age.
Why Produce at Marginal Cost?
In class, we were studying profit maximization, where we kept looking at graphs like the one below.
Here, production was on the marginal cost curve and, if it was above the average total cost, there was profit and, if it was below it, there were losses. (There was also a average variable price, which isn’t pictured here) What confused me was why production is always on the marginal cost curve. I decided to do some research and I found a pretty simple explanation.
The second image shows only MC and MR from the first graph. There is another value, marginal profit, which isn’t pictured, which is equal to marginal revenue minus marginal cost. There are three possibilities for production, where MC<MR, MC=MR, and MC>MR. We always produce at MC=MR. If MC>MR, then the company loses money, since it pays more than it makes, which is straightforward enigh. That company will, logically, make less product until MC=MR. When MC<MR, the company is making money, which seems ideal. Logically, a company could produce at MC<MR. However, when the company is making money, it will increase production. This will cause the quantity to go up until it will eventually reach MC=MR.
Just to summarize, a company’s price, or marginal revenue, will always approach marginal cost. At that point, a company will be making exactly as much money as creating another unit would cost and their marginal profit will equal to zero.
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Namibia's Economy
Namibia is a country that not many people think about. It is a small nation, right above South Africa, that bases most of its economy on to...
