Assignment (Microeconomics) Example | Topics and Well Written Essays - 500 words - 1

(Micro economicals) - Assignment ExampleThe fall in the monetary values of butter could also be due to the changes in the supply and demand as when the prices started to increase, more and more producers will be willing to supply the butter in the market and so driving down the prices and restoring the equilibrium in the market.Another possible explanation of the same can be found in the substitute goods as when the price of butter is increasing, the demand for the substitute product i.e. margarine may also be increasing. However, when the demand for margarine has started to decrease, the price of butter also fell.In short competitive markets in that location are large number of sellers and buyers selling homogenous products. Further, everyone has the complete information about the market. In such a situation, the economic win will eventually disappear because when marginal cost equals marginal revenue (equilibrium condition in the perfect markets) the economic profits will be ze ro. Further, since there are large number of sellers and buyers therefore if one producer charges higher, more sellers will come into the market and drive the profits down and eventually economic profit will disappear.Marginal principle states that profits will be maximized when marginal cost is equal to the marginal revenue. When marginal revenue is higher than the marginal cost, the producer will produce more units of goods and will eventually force the prices to come down to the level of marginal cost. Thus producer will root the production of any good based on the marginal cost i.e. as long as it is lower than marginal revenue, firm will lay out its production to achieve until both are equal.Since average variable cost is greater than price, firm should shut down its production because it is not even acquire its average variable cost. The accountants statement is flawed in the sense that she is equating total