Advanced Economics(resoponses to economyst to my q

posted by John

Orginal question:

although diseconomies of scale may not result in a rising marginal cost (but it is certain for AC,right?), Law of diminishing returns cause the rise of MC indirectly. Under this situation, WHY P did not rise(Price rigidity)?Because P=mc in equilibrium, if MC rises, P should rises also,then there should not be price rigidity.

BUT the case why Law of diminishing returns doesn't apply cause the rise of P and thus MC?WHAT IS THE rationale behind this keynes assumption?

thx foy your patient reading and answer!

  1. economyst

    Im having trouble understanding your question. That said:
    1) if AC is rising, MC must also be rising -- by definition. Further, I cannot think of a circumstance where there is dis-economies of scale and MC not rising.

    But I can think of reasons why MC could rise while P remains constant. Consider a firm selling in a perfectly competitive market. For the firm Price is given. The firm produces where MC=P. Now then suppose something happens and MC for the firm goes up (meaning the whole MC curve shifts upward). In this scenario, nothing happens to price; the firm will produce less than before.

    Now then, in the Keynes scenario, he assumed there was wage rigidity; that firms could not lower a person's wages. (wage rigidity caused by contracts or by the belief that a riot would ensue if a firm suddenly cut wages).

    I hope this helps.

Respond to this Question

First Name

Your Answer

Similar Questions

  1. Managerial Economics

    Diseconomies of scale can be caused by: A)bureaucratic inefficiencies B)increasing advertising and promotional costs. C)the law of diminishing returns D)all of the above
  2. Managerial Economics

    When a firm increased its output by one unit, its Average Cost decreased. This implies that A)the law of diminishing returns has not yet taken effect B)MC<AFC C)MC<AC D)MC=AC
  3. economics

    When a firms long run avg cost curve is horizontal for a range of output, then in that range production displays: a) constant avg fixed costs b) increasing returns to scale c) constant returns to scale d) decreasing returns to scale …
  4. To: Economyst

    I did mean Q Suppose you are the manager of a small chemical company operating in a competitive market. Your cost of production can be expressed as C = 100 + Q2, where Q is the level of output and C is total cost. a. Is this a short-run …
  5. Economics

    Suppose the total output curve increases at an increasing rate for workers 1 to 50, increases at a decreasing rate from workers 51 to 101, and decreases beyond 101 workers. You would know that Choose one answer. a. marginal product …
  6. micro

    hi, i need some help with my econ homework. i know what the law is, basically that more isn't always better. i just need to know how to tell if it applies to a labor equation. my problem goes like this. F(K,L) = K + 10L, write expressions …
  7. Economics

    2. If a firm increases all of its inputs by 60 percent and its output increases by 90 percent, then you know that: A) it is encountering diseconomies of scale. B) it is encountering economies of scale. C) it is encountering constant …
  8. Economics

    1. The law of diminishing returns implies that at some output level: a) Marginal cost must fall b) Average total cost must diminish c) profit increases d) Marginal cost must rise e) Total cost must fall 2. The vertical distance between …
  9. Econ

    When the law of diminishing returns applies, which of the following would rise with increased employment of labor, ceteris paribus?
  10. economics

    Explain in about 4 paragraphs with numerical illustrations and graphs what is Diminishing Marginal Returns.

More Similar Questions