Foundations of Microeconomics Consumers and Firms Essay

Foundations of Microeconomics Consumers and Firms - Essay ExampleThe output of the plant is 300,000 unit of measurements per day at a be of $30 per unit. The total revenue per day is 300,000 * $30 = $9,000,000. According to Parkin (2005), A firm shuts down if the price falls below the minimum of average variable cost. The end request is the output and price at which the firm just covers its total variable cost (p.244).As we can see, the total revenue exceeds the variable cost and it would be recommended to continue to produce. If gross sales continue to stagnate and drop, there result come a point at which shutdown will be advisable. When sales have reduced to the 250,000 unit level, it will be necessary to begin layoffs. The revenue at that point would be 250,000 * $30 = $7,500,000 and equal to the variable cost. To evacuate shutdown, labor costs would need to be reduced.The relationship between a change in price and the change in demand is known as elasticity. If a change in price results in no change in demand, this is known as perfectly inelastic demand (Parkin 2005 p. 84). This would be seen in the market for necessities such as electricity or heating fuel. If the ratio of price change is equal to the change in demand, this is known as unit elastic demand (Parkin 2005 p.84). With some items, such as food, an increase in price only results in a small change in demand. Consumers will cut back, but not eliminate, the product. This is known as inelastic demand (Parkin 2005 p.84). ... The demand change is equal to 10 / 30 * 100 = 33.33%. The change in demand has a larger percentage decrease than the percentage of increase in price and is an elastic demand.Part ThreeAs a policy maker concerned with correcting the effects of gases and particulates emitted by and local power plant, I would first look to command and control regulations. This is the simplest approach for the government and would transfer the cost of reducing the emissions to the consumer and the firm. While this may be the simplest, it may not be acceptable to environmentalists or the parties burdened with the cost. It is also difficult to enforce.Vouchers are another method acting that should be considered. However, since the problem is a local power plant, the tactic might be ineffective. The firm could purchase vouchers and still continue to discharge pollutants. Charging an emissions fee for the make out discharged may be viewed as a penalty or fine for polluting and would be a cost passed on to the consumers. Taxing the pollutants would have the favor of providing an economic incentive for compliance. These taxes, known as Pigovian taxes, can be useful in getting a firm to act as if they are rush the total cost of the externalities (Parkin 2005 p.348).The tax method seems to be the most efficient. Under the tax method, the tax rate is set at the cost of the externalities. The pollutants fall to the point that the cost to produce plus the tax reaches market equi librium. Polluting above that point raises the cost beyond the marketable price. This would efficiently control the discharge and put the funds in the hands of the government to be used to cover the external costs or tax reduction.ReferencesParkin, M. (2005). Microeconomics (7th ed.). Boston Pearson