Chapter 15 Reflection

Chapter fifteen: Monopoly

The thing that I found most interesting and learned from this chapter is that when graphing curves for monopolies, there is no supply curve.  After reading this though, it makes perfect sense.  Because a monopoly is the sole provider of a good, it is a price-maker.  And there is no supply relation between price and the quanity of output produced.  A monopoly will maximize profit by producing the quanitity at which MR=MC, but then it will choose the price at which that quantity is demanded.  And whereas a competitive firm will choose a point at where P=MR, a monopolistic firm's price will exceed its marginal revenue.

In the text it states that goverment-created monopolies usually arise due to 1) political clout or 2) because the goverment believes it would be in the best interest of the public.  I am not sure that either of these would be a good reason to create a monopoly on trash removal.  I think the reason for goverment to create this monopoly would be to generate income.
We were able to choose between two private companies, and chose who we thought had the best prices, offerings (such as recycling pickup) and schedule.  I personally favor being able to choose.  I guess I'm just conservative like that. :)

That's all for now...
Ciao!

Chapter 14 Reflection

Chapter fourteen: Firms in Competitive Markets

The goal of a firm in a perfectly competitive market is to maximize profit.  If a firm is profit-maximizing, it will operate at a point where price equals marginal cost (P=MC).  This is because in a perfectly competitive market, firms are price-takers.  Therefore they really can't set their prices higher than the point where P=MC or they are likely to have no business.
At the point of profit-maximization, price also equals marginal revenue (P=MR). And marginal revenue equals marginal cost (MR=MC), hence the two are interchangeable in relation to price under these circumstances.  Because a firm in a perfectly competitive market tries to operate at the point where MR=MC, it is understandable that if MR is greater than MC, the firm can increase production and it will result in an increase in profit.
From what I have read, there seems to be no actual perfectly competitive firm.  I suppose what I think would come close is something like the corn industry.  This is because there are a large number of buyers and sellers, the goods being offered are identical, and I don't think there are any barriers to entry or exit of the market.
I guess it doesn't suprise me that there are no firms considered to be perfectly competitive.  It seems like it would be near impossible to operate under these conditions 100% of the time!

That's all for now...
Ciao!

Chaper 13 Reflections

Chapter thirteen: The Costs of Production

Marginal costs curves first start to fall before they rise. This is due to the fact that while at first an increase in marginal product may see a decrease in marginal cost, eventually a firm will experience diminishing marginal product which happens when marginal cost rises with each marginal product.
Simply put: when there's too many cooks in the kitchen it starts to be more expensive to bake an additional cake.
Depending on the size of the company, with the first few hires it may reduce marginal cost while increasing marginal product because a team may be more efficient than just one worker. Eventually the company will see diminishing marginal product for reasons such as the workspace getting increasingly crowded, having to hire more management to oversee the increasing amount of employees, etc.

Marginal cost is important when deciding to increase of decrease production because profit-maximizing firms strive to operate at a point where marginal revenue equals marginal cost. If marginal revenue is less than marginal cost, a firm can boost profit by increasing production - and vice versa.
There are many ways I could apply these cost concepts to my life. The first that comes to mind would be finding the point of benefit maximization between work and school. There are x amount of hours I need to work to be able to eat, pay bills, support my kids (dogs), etc. Over the past couple of semesters I have had to find the balance of classes to be able to utilitze my time as efficiently as possible while not overwhelming myself and being able to achieve the high standards I've set for myself in terms of grades and GPA. The first semester I only took two classes. I can now relate that to having marginal revenue greater than marginal cost. I realized that if I was diligent, I could squeeze another class in. Now if I were to take four classes, I think that would equate to marginal cost being higher than marginal revenue. My grades would likely suffer at the hand of just not having enough time to fulfill all of the homework assignments and study like I should. It seems that for now, I have found the point - at three classes - where my marginal "revenue" equals my marginal cost. I have found the current point where I can make enough to provide a living, earn the grades I want, and get done with my degree as quickly and efficiently as possible.

And that's all for now...
Ciao!

Firm Type

Firm Type: Natural Grocers

For this assignment I am choosing to analyze Natural Grocers by Vitamin Cottage which is (pretty self-explanatory) a natural grocery store. The market type that I perceive Natural Grocers as being in is the oligopoly market structure, but slowly progressing towards monopolistic competition. Average grocery stores would fall under monopolistic competition because there are many firms selling similar products – most even offering a small assortment of organic foods. As of mid-2012, organic food only accounted for about 4% of all foods sold. For this reason I believe that natural grocery stores (stores that sell as majority only natural or organic foods as opposed to large grocery chains that carry some natural/organic foods) still fall under the oligopoly market type because there are still 1) few sellers: in the Colorado area there are a) Whole Foods b) Sprouts and c) Natural Grocers - 2) and they are offering similar or identical products.

                Because the number of companies and their take of the natural foods market share are increasing, prices are gradually growing closer to marginal cost and behaving slightly like a competitive market.  That being said it has not quite grown to a competitive market just yet. I still believe Natural Grocers utilizes a dominant strategy. Natural Grocers is a smaller, not-so-flashy chain as compared to Whole Foods and therefore carry fewer brands at lower prices. Whole Foods is a larger corporation with more variety to whom customers usually come for the “experience” therefore they can afford to have higher prices. Even though Natural Grocers and Whole Foods are offering similar products, their pricing strategies are different, illustrating the dominant strategy employed by these companies. They also branch into non-pricing strategies in the form of value-added pricing. Natural Grocers and others in this market strive to provide excellent customer service and build customer loyalty. This strategy doesn't focus on price, rather on creating an allegience with the cosumer that keeps them coming back.

                This industry is definitely evolving. There seems to be a new wave of consumers who are health and eco-conscious.

 

I believe that modernized food will probably always be the leader in sales and market share because it’s more economically efficient to produce. But awareness will continue to rise about wholesome food and I believe it will give modernized food a run for its money. It’s already happing with big box retailers expanding their offerings to include organic foods and satisfy their customers. However there are a couple possible results. 1) Brand giants will buy out all organic food brands (this is already occurring) and there will be no more purely natural/organic grocers; organic food will solely be an option in Wal-Mart, City Market, etc. and it will phase in with the companies’ existing pricing strategy. 2) There will be significant demand for nourishing food, the industry will continue to grow and develop its own competitive market, shifting prices toward marginal cost.

Works Cited            

 Ferner, Brandy. "Is Whole Foods Really More Expensive? And Other Grocery Store Findings..." Mother Nurture. N.p., n.d. Web. 31 Mar. 2013. http://www.mothernurturedenver.com/2011/06/is-whole-foods-really-more-expensive-and-other-grocery-store-findings…/.

Runtung, Clairine B. "Value-Added Pricing." Marketing Examples. Marketing 301 Blog, 12 Feb. 2010. Web. 31 Mar. 2013. http://uwmktg301.blogspot.com/2010/02/value-added-pricing.html.

Strom, Stephanie. "Has 'Organic' Been Oversized?" The New York Times. The New York Times, 08 July 2012. Web. 31 Mar. 2013. http://www.nytimes.com/2012/07/08/business/organic-food-purists-worry-about-big-companies-influence.html?pagewanted=all.

"U.S. Grocery Shopper Trends 2012 Executive Summary." ICN Intelligence Clearing Network. Food Marketing Institute, n.d. Web. 31 Mar. 2013. http://www.icn-net.com/docs/12086_FMIN_Trends2012_v5.pdf.

 

 

Chapter 12 Reflections

Chapter twelve: The Design of the Tax System.

Which tax system do I prefer?
(Disclaimer to all who read: you will probably disagree!)
I fancy the proportional tax, or at the very most, a progressive tax with very slight increases in brackets (much smaller than they are now).
My reasoning: I believe that it's equitable. Okay, and maybe there's just a touch of rebellion in there - I don't think the government should be allowed to make anyone pay more than anyone else based on any circumstances!
I have a few reasons I think this is the appropriate system relating to the deficit and small businesses, but for this post I'm going to focus on equity.
Now when it comes to equity, the norm in economic conversation is usually the opposite with arguments that progressive tax is the essence of equity. And while I get where that argument comes from (everyone should be giving up an equal "slice of their pie"), I disagree. The same share should be taken from the rich and the poor. Why should our government take more in taxes from someone just because they make more money? They shouldn't. Just like they shouldn't take more in taxes from people who make less money, or have blonde hair, or own a hot tub. But seriously, where is the equity in that?
I think many of us Americans are too quick to throw around phrases like "They've got a ton of money, they can afford it" and "Increase taxes for the rich, they probably won't even notice while they're drinking that $80,000 bottle of wine" or "We're in a recession and our government has a budget deficit, the rich can afford to help."
And to that I say, where do any of us get off thinking we are owed anything by anyone else just because they are "rich"? But I've got a whole rant for that topic so I'll spare you...
So yes, I believe that equity is not discriminating, and not having a higher tax bracket for anyone - rich or poor.
J.R. McCullough, a Scottish economist stated: "The moment you abandon...the cardinal principle of exacting from all individuals the same proportion of their income or their property, you are at sea without rudder or compass, and there is no amount of injustice or folly you may not commit."

That's all for now...
Ciao!

Chapter 11 Reflections

Chapter eleven: Public Goods and Common Resources.

Federal prisons are an example of a public good/service. There are many costs associated with prisons; food, staff wages, electricity, water, etc. paid by taxpayers. According to a survey done by Vera Institute of Justice, in fiscal year 2010 the total cost of prisons to taxpayers was $39 billion. In Colorado alone, the total cost to taxpayers for 2010 was $606,208,000.
The benefits of prisons are most importantly safety, and justice. The justice component says if you break the law, you suffer the consequences. If you can't abide by the rules of society then you are not fit to be free in society. And there are several ways that prisons increase safety. People who have done wrong serve their time. In some cases that provides an incentive to not break the law a second time. If that's not the case, then usually they are right back behind bars.
There are other ways to provide corrections, and that is to have it privatized. Currently private prisons account for about 10%. If corrections were to be completely privatized the outcome would likely not be good. Businesses cut costs to maximize profit, and whereas normally that's good business sense, it wouldn't be in this case. Conditions and security would definitely suffer.

I don't know that I would say this chapter made me look at public goods differently, rather it made me realize how much I take for granted. Yes I pay taxes, but I feel that the plethora of benefits I get in return far outweighs the actual cost of taxes.
I am blessed!

That's all for now...
Ciao!

Works Cited:http://www.capps-mi.org/pdfdocs/the-price-of-prisons-updated.pdf

Chapter 10 Reflections

Chapter ten: Externalities.

One of my favorite (weird way of putting it) examples of a negative externality is unhealthy food. The production of unhealthy food yields numerous social costs; costs to health care, decreased productivity, and a vast array of health problems such as obesity, heart disease, high blood pressure, etc.
There are many ways that food is produced unsuitably. For example: beef. The average American beef farmer "produces" beef by feeding them a diet of corn and raising them in compact feedlots. Because of the cramped, unisanitary conditions they are kept in, if one cow has a disease - all the cows have a disease. Also if farmers would take their cows off the corn diet and grass-feed them for just 5 days before slaughter, they would shed 80% of the E. coli in their gut. But this would not be profitable for the farmer. And as a result of decreased production, beef prices would likely rise 5-10% which would cause dismay to the average consumer.
In today's society, what most consumers look for is inexpensive food. Food production has adapted by creating ways to produce more of fewer foods to reduce the apparent cost to consumers and increase availability of those foods.
I could dive into a rant about how almost everything in the average supermarket is unhealthy but I'll spare you. :)
I don't believe the problem can be fixed by applying the Coase theorem. The reasoning behind that belief?
It hasn't worked yet!
Farmers and food creators don't have any incentive not to produce foods in these ways (in fact they have incentive to do it - money!) and most of the general public is either uneducated about the food they are eating or driven by the lower prices offered. If applying the Coase theorem to this negative externality I would say it would - and has so far - failed.

 

That's all for now...

Ciao!

 

 

And an intersting paper on externalities in industrial food production from the Dartmouth Law Journal:http://www.dartmouthlawjournal.org/archives/9.3.6.pdf