Profit-maximizing quantity, Macroeconomics

Assignment Help:

Aggregate supply

Remember that labor demand provides us profit-maximizing quantity of L for a given real wage. If W/P is given (as it's in cross model), we can find profit-maximizing quantity of L from the graph. We signify this by LOPT. If firms use LOPT amount of labor, they would produce YOPT = f (LOPT, K) where f is production function and K amount of capital (exogenous). 

324_profit-maximizing quantity.png

Figure: Profit-maximizing quantity of L and Y

A significant assumption in cross model is that YOPT is always larger than YD -aggregate demand isn't enough for the amount that firms would like to supply at given real wage. This assumption has a very significant consequence. Albeit producing YOPT would maximize profits, firms won't produce this level because of the lack of demand. They will only produce YD and we see why it's aggregate demand that is significant in the cross model. Again, note how Keynesian cross model works with quantity adjustments in place of price adjustments as in the classical model. We signify the level of output produced by firms by Y*.


Related Discussions:- Profit-maximizing quantity

Senator is considering tax, You are an assistant to a senator who chairs an...

You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on relate

What is the meaning of deindustrialisation, What is the meaning of Deindust...

What is the meaning of Deindustrialisation Deindustrialisation or structural decline of many manufacturing industries along with activities like coal mining is associated with

Full employment and the natural rate, Is the natural rate of unemployment f...

Is the natural rate of unemployment fixed? Why or why not? How are full employment and the natural rate of unemployment related? Is the actual rate of unemployment currently greate

One least-cost way to make wooden boxes, There is only one least-cost way t...

There is only one least-cost way to make wooden boxes for shipping tomatoes, and any firm that makes them has a cost function given by 2 TC q q = + + 200 .005 .The inverse market d

Financing of fiscal deficit, Financing of Fiscal Deficit: Since the siz...

Financing of Fiscal Deficit: Since the size of balanced budget of the multiplier is small, it is not for all time possible to get the needed demand expansion by raising the exp

The short-run macroeconomic equilibrium, The figure below defines an econom...

The figure below defines an economy's aggregate demand curve and its short-runand long-run aggregate supply curves (labelled AD, SRAS, and LRAS, respectively). practically,the econ

Events x and y are mutually exclusive, The events X and Y are mutually excl...

The events X and Y are mutually exclusive. Suppose P(X)=.05 and P(Y) =.02. What is the probability of either X or Y occurring? What is not probability of X nor Y happens?

Component of balance payments, Component of balance payment: BOP is a ...

Component of balance payment: BOP is a statement  that summarises all the economic transactions between residents (individuals, companies and other organisations) of the home

Difference between opportunity and accounting cost, Provide an explanation ...

Provide an explanation of difference between opportunity and accounting cost, and accounting and economic profits. Then, please provide an example from your experience where opport

Producer equilibrium, If the MPPL/ MPPK in the production of a good are les...

If the MPPL/ MPPK in the production of a good are less than w/r, why is the produce not in producer equilibrium? Explain how, with no change in budget size for the firm and with th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd