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

#GDP, There are three firms in an economy: A, B, and C. Firm A buys $450 wo...

There are three firms in an economy: A, B, and C. Firm A buys $450 worth of goods from firm B and $260 worth of goods from firm C, and produces 260 units of output, which it sells

Money banking and finance, The analysis of the speculative demand for money...

The analysis of the speculative demand for money reveals the importance of the level of wealth. Explain this assertion in detail

Exogenous variable change, Market questions come in two types: Type 1: y...

Market questions come in two types: Type 1: you are given the exogenous variable change and you must shift the correct curve in the right direction and then determine the new pr

BUS668, Prepare calculations and a one to two page analysis, following the ...

Prepare calculations and a one to two page analysis, following the APA guidelines, that addresses the following: Assuming that the expectations theory is the correct theory of the

Calculate asset turnover, The following information has been extracted from...

The following information has been extracted from the recently published accounts of Noddy Plc:                           Balance sheet as at 31 st May

Wal-marts supply chain management, Explain the impact of Wal-Mart's supply ...

Explain the impact of Wal-Mart's supply chain management on its total product, marginal product, and average product curves. What has been the effect on its retail prices?

Exchange rate, what are the types of exchange rate

what are the types of exchange rate

Money demand, What will happen to the shape of the money demand curve if th...

What will happen to the shape of the money demand curve if the checking accounts bear interest? will it still slope down if the interest of the checking account is fixed while the

interpret and explain the nmr spectrum, Treatment of Na2PdCI4 with 3-chlor...

Treatment of Na2PdCI4 with 3-chloro-2-methyl-1-propene under an atmosphere of CO yields the dimer [(11 3 - C 4 H 7 )PdClb (A). The 1H NMR spectrum of A at 298 K shows 3 signals: a

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