Readers Question: If the wage bill per unit of labor (L) is $30 and the cost of capital (K) is $200 in the short run, fill in the BLANKS in the table below.

L     TVC   Q     MPL    APL   AVC    TFC      TC       ATC   MC
0      0           0
1               4
2              10

I don’t want to fill in the answers, but, here are some explanations of what things mean:

• Total Fixed Cost TFC - cost independent of output. In this case I assume it is $200
• Marginal cost MC - the cost of producing an extra unit of output. For example, if the first worker produces 4 units and costs $30. the marginal cost of each unit is $30 / 4 = 7.5
• However, the second worker produces an extra 6 units. Therefore, the marginal cost of the extra six units is $30. Therefore, for each extra unit the cost is $30 / 6 5

• Total variable cost TVC = cost involved in producing more units, which in this case is the cost of employing workers. Therefore, for 2 workers the TVC should be $60
• Marginal Product Labour MPL = This is the extra output generated by an extra worker. Therefore, the marginal product of the first worker will be 4 units. The second worker adds an extra 10-4 units.
• Average Product Labour APL = Total Output / number of workers
• Average Variable Cost AVC = Total variable cost / quantity produced
• Total cost TC = Total variable cost + total fixed cost
• Average Total Cost ATC = Total cost / quantity

Market Power occurs when a firm has a significant share of the market – say greater than 25% of the market. When a firm has a large share of the market it can act in a way that is said to be an abuse of market power. Abuse of market power includes:

• Setting higher prices
• Offering less choice
• Restricting competition.
• Inefficient allocation of resources.

These abuses of market power can occur in various situations.

• Monopoly – firms has more than 25% of market share – easier to increase prices.
• Mergers – When 2 firms join together to form one. This usually results in an increase in market power which can lead to outcomes such as higher prices.
• Cartels – When firms agree to restrict output and set higher prices. Effectively they are acting as if there was one monopoly in the industry.

• Monopoly
• Does Microsoft have too much Monopoly power?
• UK Mergers

Readers Question: What economic condition gives an advantage to those in debt?

Debt means that you both owe money to other people and therefore need to pay interest on the debt levels. The following economic conditions make it easier for those in debt.

High Inflation.

Inflation reduces the value of money. In periods of rapid inflation savers can see the value of their money rapidly decrease. But, debtors will also see the value of their debt effectively reduce. As prices go up, levels of debt become easier to pay back.

• However, if interest rates remain higher than the inflation rate, inflation will not reduce the real cost of debt. In modern economies like the UK, inflation is usually lower than the interest rate. However, in periods of hyperinflation like Germany in the 1920s, the level of debt was soon wiped away.

Low Interest Rates

Low interest rates make the monthly mortgage repayments smaller. This is particularly important for those with mortgage debt. A small cut in interest rates can make it easier to meet mortgage interest payments.

However, the important thing is real interest rates. (Nominal interest rates – inflation). For example, if inflation is 1% and interest rates are 5%. The effective real interest rate is 4%. If inflation was 5% when interest rates were 5% it becomes much easier to pay back the debt.

However, low interest rates may not help people with credit card debt. E.g. a cut in the base rate may reduce the credit card interest rate from 18% to 17.5% (still very expensive)

Devaluation

If your debt was in dollars and you were getting paid in pound sterling. It would be easier to pay back the debt, because of the devaluation in the dollar.

• Record debt levels threaten UK economy 
• What causes an increase in consumer debt? 
• Situations where debt is helpful 

“I worked for 6 years as an uninformed security guard.” (ignorance is bliss)

“My last role was a plumbing and hating specialists.”

• “The academic scholarship I earned came with a plague.” (the cost of university is really too high these days)

• “Most of my experience to this point has been as a blue-color worker.” (was it very cold)

• “As part of the city maintenance crew, I repaired bad roads and defective brides.” (I’m sure you had your work cut out)

• “My career goal is to shave my talents with a growing company.”

• “My hobbies include raising long-eared rabbis as pets.” (Good Luck!)

From: Funniest typos at this is us 

(comments in brackets by me)