Mankiw's Principles of Microeconomics Chapter 13

1. Why do marginal costs first fall and then begin to rise?

The effect of diminishing marginal product impacts the cost curve. Diminishing marginal product is defined as, the property whereby the marginal product of an input declines as the quantity of input increases.

2. Why are marginal costs important to a firm when making decisions to increase or decrease production?

Imagine company that was at the top of its game. It produced at a high level of efficiency and as a result, the stockholders where happy with the outcome, and they choose not to invest in the future of the industry as a whole. This lack of investment in infrastructure would be a good example of a contributing factor to increasing the slope of the company’s marginal cost. If a company chooses to not invest in its infrastructure, then it will take on more cost in order to obtain the same level of efficiency to produce at an equal level of output. To resolve this, the company would want to find the point at which its marginal costs meets its total costs and that would tell them the maximum quantity of output they’ll need in order to maintain an economy of scale.

3. How can you apply these cost concepts to your own life?

If found the readings concerning economics of scale as the most helpful in this chapter. Understanding that there are 2 ways to look at adjusting cost, long term, and short term prove critical in order to maintain constant returns to scale. As a business manager, knowing the point at which your marginal costs (MC) meets your average total cost (ATC) should guide you in your decisions to invest in additional production facilities.

 

Mankiw's Principles of Microeconomics Chapter 12

1.       If you want to read more about government expenditures one source is the Economic Report of the President, available online here: http://www.gpo.gov/fdsys/pkg/ERP-2012/content-detail.html.  Now that you have had a chance to think about tax systems which type do you prefer - progressive, flat tax, income, consumption - there are quite a few possibilities.  How do you think the concept of equity or fairness fits into a tax system?

To think that back in 1902, total government revenue as a percent of GDP was at around 15% is absurd. With today’s rate hovering at a little over 25% it really puts into perspective the amount of money we Americans spend on our government. America’s balance sheet has never been as complex as it is today. Federal spending pays for programs that most of us would agree are necessary functions of government such as national defense. There has always been much debate about what programs should be a functions of government. Take social security for example; while some will argue that the government should play a role in making sure its citizens have a source of income once they reach retirement, others will argue they should have control of those funds and make investment choices that ultimately cover more than just the rate of inflation. 

Be that as it may, come April 15^th most of us will sit down at the computer and crank out deduction upon deduction watching that refund amount rise, or if you’re on the wrong side of the coin, the amount owed increase. I don’t know about you, but at the end of the day, once you’ve transmitted your tax return to the IRS, you ask yourself if there’s a better way of doing this. I’d like to believe there is. I would tend to lean towards the side of doing away with income tax and switching to a consumption tax. If my salary is $40,000 per year then I’d like to get every last penny of it. Consumption tax is an equitable and fair way to distribute taxes throughout our country. In my opinion, a consumption tax is more progressive in nature since the higher income people would most likely continue to spend their disposable income at the same rate. I realize the price of everything would go up, in some cases substantially, but in the end, it’s the consumer’s choice to make that purchase.

Mankiw's Principles of Microeconomics Chapter 11

1. Think of an example of a Public Good.  What are the costs of providing the good?  What are the benefits? Is there another way to have the good provided? Did this chapter cause you to think of Public Goods differently?  In what way?

My mama always told me “there’s no such thing as a free lunch”, but apparently that’s changed these days. A welfare program such as the USDA’s Food Stamp Program (FSP) holds the prestigious record of being the second largest government welfare program. To give you an idea of how much that is, only Medicaid exceed this benefits program. While it’s certainly understandable why this benefit exists, it’s a prime example of a public good that retains the economic complexity of the Higgs Boson particle collider. In 2008 the cost of this program was $26 billion; in 2011 the costs have ballooned to $78 billion. Previous laws that tested the assets of applicants as well as requirements wrapped around their current work status were eliminated in 2000 by the Clinton administration. New eligibility requirements were drafted that enabled anyone receiving any type of government benefit to participate in FSP. These changes, along with aggressive marketing programs aimed at raising awareness to the availability of “government cheese” hand out programs increased the costs of the program substantially.

Don’t get me wrong, the FSP is an absolutely necessary benefit in order to maintain a civil society, especially when we consider the real unemployment rate in today’s economy. However, I think we need to consider the incentives we’re providing people to change their dependencies. While the National Parks Service is putting up signs asking us humans to not feed the animals, because they’ll become dependent on our assistance for survival; here we are feeding ourselves with government assistance by lowering our standards during 2000 when the economy was on a tear. In my book that is the definition of creating a dependency.

Right now we should be developing policies that incentivize behaviors that will encourage people to get off these programs. With all of the negative media surrounding the unemployment situation in our nation, I can understand why we are so resistant to force this change but we’ve got consider it and make the difficult decisions.