I gotta get this off my fucking chest. I'm watching Destiny's latest debate with Pogan, and in the middle they dance around if Marginal Utility does or does not include labor cost in it's ultimate determination of value. I am a BS in Economics from a research institution, so I think have some authority to explain the most basic concept of orthodox economics.
Lets first explain the Demand curve. Basic economics states that the demand curve represents the market's demand for a product at a given price. But when creating the demand curve, we necessarily incorporate the marginal utility for all actors. We can describe the demand curve and how the market works as such: At it's highest point, when quantity is lowest, only those which have the highest marginal utility for the item will necessarily purchase that item. For a real world example, we can look at the scalping of PS5s, where the people who purchase from a scalper have a higher marginal utility for the product (in some sense, but not for everyone) than people who choose to wait for buying at retail. In that real world example, lets ignore inequality and just try to understand the phenomena in the most general sense; people who buy from scalpers want the item more than people who wait, all else being equal. Conversely, we can examine the lowest point of the curve where almost the entire market will purchase the item because their marginal utility is higher than most of the lowest prices. IE, if a PS5 was offered for a dollar, almost everyone would purchase it. In fact, this phenomena creates the scalping black market from before. Scalpers understand the the current value of a PS5 is greater than the price it's being offered at, so they see an opportunity for arbitrage. Importantly, as Pogan said, the marginal utility that an individual has for an item DOES NOT INCORPORATE LABOR COST. If I value a PS5 at 1 million dollars, this is an expression of my personal preference of a price for which I would purchase the item, even if a PS5 costs much less to produce.
HOWEVER, TO DESTINY'S POINT, AND I CANNOT STRESS THIS ENOUGH, THE ULTIMATE DETERMINATION OF THE MARKET PRICE (IE WHAT WE GENERALLY UNDERSTAND AS MARKET VALUE IN A CAPITALIST ECONOMY) DOES NECCESSARILY INCLUDE LABOR COST BECAUSE MARKET TRANSACTIONS ARE DETERMINED WHERE SUPPLY=DEMAND. Fundamentally even, one can say in a perfect market, ie a perfectly competitive market, equilibrium is reached where Supply=Demand=Marginal Cost=Marginal Revenue. To expl
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1-For the cost function find the Marginal Cost at the given production level x. C(x)=15,000+40x+1,000/x ; x=100 2-For the cost function find the Marginal Cost at the given production level x. C(x)=20,000+40x+10,000/x ; x=100
Thank you in advance :’)
My cost function is C(x)=50x + 1000
C'(x)=50
I have tried 50=C(x)/x but it dosent have soloutions.
The answer is supposed to 1000.
What I don’t understand is how a company can maximize profits when marginal costs equal market price and marginal revenue because doesn’t it imply that producing an additional item costs them the same as its price and the revenue they would generate by selling it (meaning that they don’t make a profit)?
My FIRE number is $3MM which I'm on track to hit at 36. I project that it would take an additional 2 years to hit $4MM, 21 months to $5MM. I'm not in a strictly X% of balance = withdrawal rate situation - my spend at $3MM will be capped at $10,500/mo. $4MM would be $13,500, $5MM would be $16,500.
I'm wondering what your thoughts are on the marginal improvement in quality of life going from $3MM to $4MM/$5MM. Here's how I view it: $10k/mo is plenty to live very comfortably, and that's largely where my number came from. Adding $3,500/mo would nearly reduce my "should I buy that" to zero. I don't spend a lot, certainly not on big items, but I do spend on $300 dinners, $100 bottles of Whiskey, that sort of thing. At $4MM, I wouldn't bat an eye at these expenses. At $5MM, that's an extra $6,500 (-taxes). Now we're in lease a Range Rover and it doesn't change your spending habits at all territory. Going to Paris? $800/nt no problem.
Lastly, and probably most importantly for me, it reduces risk considerably. Let's say I'm at 70% essential spending at $10k/mo. That would be 51% at $4MM, or 42% at $5MM. That gives you a lot more flexibility & comfort in a bear run.
So, what are your thoughts: is selling your late 30s worth $1-$2MM?
Hi guys, To understand cost of equity I ended up reading
This link : http://people.stern.nyu.edu/adamodar/New_Home_Page/littlebook/discountrates.htm
from Damodaran's lectures. In this link he says that cost of equity that an equity investor demands from that stock. If there was only one equity investor, its easy to calculate that cost of equity. But with thousands of investors its tricky because every investor has a different risk aversion thus different cost of equity. So he introduces a notion of "Marginal Investor" who has majority stake and can actually influence the stock price. He says, to calculate cost of equity, we should consider risk from the point of view of this marginal investor assuming this marginal investor is well-diversified.
I feel like I have barely understood this. Is it possible for someone to expand on this? Maybe also your take on cost of equity? ELI5 would be the best
I've taken a couple lower level economics courses now and it seems like a lot of microeconomics relies on the "welfare" of a market being highest when marginal cost equals demand. I don't feel I've ever received a satisfying definition of whose "welfare" is actually being maximized in this situation and why it happens at this exact point. Usually, the basic supply and demand graph has just been shown without an explanation of why that actually occurs. So yeah, it's been bothering me that the rest of these courses rely on that unsubstantiated assumption so I'd really appreciate it if anyone could ELI5 what exactly welfare really is and how we know it's maximized at MC=Demand
https://preview.redd.it/5lwp4k6fe3w51.jpg?width=960&format=pjpg&auto=webp&s=27bccbb78a14d5277e2726d27f72c7093a9c6df2
I am kind of confused why we are supposed to use the marginal cost of debt when calculating cost of capital. To my understanding marginal cost of debt is cost of additional dollar in debt. What if my current cost of debt is 5% and lets say the cost of borrowing additional debt is know 8%. Why when calculating cost of capital i should use the marginal cost of debt not the average cost of debt? Why not using a weighted average of debt cost?
Here is the question that I am hung up on:
A real estate investor researches 4-plex apartment complexes in a city and finds that from 2000 to 2012, the average price of the 4-plex is approximated by p(t) = 0.15e^0.20t million dollars, where t is the number of years since 2000. For the 4-plex in 2010, how fast in dollars was it increasing per year?
Here is how I have tried solving it, but keep getting told this is the incorrect answer:
- Take derivative of p(t)=0.15e^0.20t and I get p'(t)=0.03e^0.20t
- Plug in 10 for t --> p'(10)=0.03e^0.20(10)=0.221671683...
- Multiply by 1,000,000 because answer is in million dollars, and get ~$221,672.
I'm not sure how else to do this problem, and I keep checking to see if I miscalculated something along the way, but can't find anything?
Any help would be greatly appreciated!
Edit: typo
If the marginal cost of producing 5 units of a good is $25, the supply and demand curves would predict that if the market price for that good was $25, then 5 units would be supplied. This doesn't make sense to me, wouldn't the supplier be making 0 profit on that 5th item? It costs $25 and sells for $25, so why produce that good?
Suppose there is a cost function C(x) = Ax^(2) + Bx + C.
With direct differentiation, Marginal cost = C'(x) = 2Ax + B
However, using derivative definition, marginal cost = C'(x) = C(x+1) - C(x)
Using the above definition, C'(X) = A(x+1)^(2) + B(x+1) + C - [Ax^(2) + Bx + C]
= 2Ax + A + B
Where did the extra 'A' come from? Is my entire working wrong? :'(
Is there a mistake I'm making here? Thanks! I got derivative definition from here: http://www.csun.edu/~tm856866/lectures/ReviewFinal.pdf
hello! i just want to ask in perfect competition, why is price=average cost=marginal cost? also
In general, why does AC depends on the nature of MC?
What is the difference between Marginal Utility and Marginal Cost ?, Pls give examples
