Scientific models simplify conditions in order to help us understand complex relationships. Economic models like the price-taker and price-searcher models are no exception. But these models leave out some important elements of the business decision-making process. Furthermore, they gloss over the complexity of other decisions that must be made by real-world entrepreneurs.
Will profits increase if prices are raised (or lowered)’?To get an answer to this question, real-world business decision makers cannot go into a back room and look at a demand-cost diagram. Instead, they must search for clues, experiment with actual price changes, and interpret what they see, often using a great deal of “seat-of-the-pants“ judgment. Our model doesn’t reveal precisely how this is done, but it highlights the fact that entrepreneurs are strongly motivated to find the profit-maximizing price. Those that are most successful will at least approximate this objective, and the outcome will be as if they had deliberately chosen the MR = MC price and output combination of our model.
Although the competitive price-searcher model explains how entrepreneurs will re- act to profits and losses in a specific market, it does not explain how and when new products will be developed or new production techniques applied. How will consumers react to a potential new product? Can it be produced profitably? Will a new production process or alternative technology reduce cost? Can per-unit costs be reduced if the firm offers a different combination of products and services? Here, again, the marginal principle applies: if the change adds more to revenue than it does to cost, it should be made. But how much of a change should be made? Up to the point where MC = MR, of course. Identifying this point for each potential change, however, is difficult. Such decisions generally involve an important variable that is omitted from our economic models: entrepreneurship.
The firm’s output decision is based on comparing benefits with costs. A firm that decides to enter a market will expand its output as long as the benefits (additional revenues) from the production and sales of the additional units exceed their marginal costs. How will changes in output change the firm’s costs? In the preceding posts, we discovered that the firm’s short-run marginal costs will eventually increase as the firm expands its output by working its fixed plant facilities more intensively. The law of diminishing marginal re- turns assures us that this will be the case. Eventually, both the firm’s short-run marginal and average total cost curves will turn upward.
What about the benefits or additional revenues from output expansion? Marginal revenue (MR) is the change in the firm’s total revenue per unit of output. It is the additional revenue derived from the sale of an additional unit of output. Mathematically,
MR = Change in total revemel change in output
Since the price taker sells all units at the same price, its marginal revenue will be equal to the market price.
In the short run, the price taker will expand its output until marginal revenue (price)just equals marginal cost. This decision-making rule will maximize the firm’s profits (or minimize its losses),
By the time you’re nearing retirement, you should have substantial equity in your home, regardless of what your local market has done. If that’s the case, you can leverage your home to help you boost your income that don’t rely on the stock market or home prices to keep you solvent. Simply down-sizing can be one way to take out extra income from the equity in your home, and since your kids should be grown by then, it makes a lot of sense for families. Another way to leverage the home is to take the money and invest some of it into funds that produce income while you sit snugly in a new, smaller, home.
Why Downsizing Makes Sense
While it’s true that no one likes to move, the expenses for moving can be covered with short-term cash advances or loans, and the long-term benefits outweigh the costs. Downsizing provides relief in the form of lower real estate taxes, insurance, maintenance, and utilities. Month to month, you should see a positive effect in your cash flow, just by moving to a smaller home. And, the nice part of it is that you can still have a fixed mortgage and not worry about stock market fluctuations at all.
Financing More Income Options
If you downsize and don’t need all the income for living expenses, it’s still a great time to invest in funds or annuities that can help you develop more income down the line in retirement. Once you cash out of the bigger home, prices can drop however much they want, and you’re not as affected. If you pick some safer investments that increase over time, you will have diversified your risk and made some additional income too.
In the time of crisis a lot of people try to cash their possessions in order to pay their bills. There are companies out there who try to take advantage of the situation and scam people off their money. Cashing your jewelry may lead you to a lot of trouble. This is how it works:
- The company receives your refiner’s pack (jewelry) for appraisal.
- They appraise it by hand (no specialized equipment is used, no experts involved)
- They send you a check with a 100% Satisfaction Guarantee.
The catch is that the check is mailed to you very late and you can get your jewelry back or refund only if you contact the company within 10 days from when your check is dated (This begins with the time it takes for the accounts payables department to issue the check and also including the transit time for you to receive your check in the mail). The check is usually dated within 24 hrs of receiving your jewelry, but it is sent out a few days later. You usually receive your check around the 7th, 8th, or 9th business day so you may have only 1-2 days or none to ask for refund. If you try to contact company representatives, it is nearly impossible to get in touch with anyone. After the ten-day period has lapsed, you will be told that the item is already melted or it is no longer available for return.
The company insures your package for up to $100. If your jewelry is worth more than that, it often happens to get lost in mail. If you call the company to check on the status of your items, they will that you should have added extra insurance on your items.
