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

Answer for this only assignment question in (3000 words), Question 3 (44 ma...

Question 3 (44 marks) Please note that this question requires substantial research. A summary from the text book is not sufficient. To score well you will have to consult several a

Income Distribution, Researchers have put forth various theories to explain...

Researchers have put forth various theories to explain the observed widening of the income distribution in the United States over the past four decades. First, there has been a sh

National income, how useful is national income statistics for indicating li...

how useful is national income statistics for indicating living standards

How to evaluate total savings, Q. How to evaluate total savings? Total...

Q. How to evaluate total savings? Total savings Total savings S(r) depends positively on the real interest rate Remember that total saving

Aggregate demand policies, Aggregate Demand Policies Both fiscal and m...

Aggregate Demand Policies Both fiscal and monetary policy changes shift the AD curve. Let us see how, starting with a fiscal expansion. See figure 6.2. In the upper panel, the

Aggregate demand in the cross model, Aggregate demand in the cross model ...

Aggregate demand in the cross model Because C and Im depends positively on Y while G, I and X are exogenous, aggregate demand Y D will depend positively on Y:  Y D (Y) = C(

Effect of distance on completed, From stock and watson 3rd edition introduc...

From stock and watson 3rd edition introduction to econometrics Using the data set CollegeDistance described, run a regression of years of completed education (ED) on distance to t

Explain why quantitative measures, Suppose a company is considering two inv...

Suppose a company is considering two investment projects. Both projects require an upfront expenditure of $30 million. The company estimates that the cost of capital is 10% and tha

International trade, how can a country maintain equilibrium GDP with foreig...

how can a country maintain equilibrium GDP with foreign trade?

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