first-order condition

Examples of first-order condition in the following topics:

• Profit Maximization Function for Monopolies

  • Monopolies set marginal cost equal to marginal revenue in order to maximize profit.
  • As a result, the first-order condition for maximizing profits at quantity q is represented by:
  • The above first-order condition must always be true if the firm is maximizing its profit - that is, if p(q)+qp′(q)−c′(q) is not equal to zero, then the firm can change its price or quantity and make more profit.
  • Using the first order condition, we know that when profit is maximized, 0=p(q)+qp′(q)−c′(q).
  • First, marginal revenue lies below the demand curve.

• Farm Policy of the 20th Century

  • Despite farm groups' uneven political record during the late 19th century, the first two decades of the 20th century turned out to be the golden age of American agriculture.
  • Then, the farm sector was hit by unfavorable weather conditions that highlighted shortsighted farming practices.
  • The term "dustbowl" was coined to describe the ugly conditions.
  • Under so-called marketing orders, the amount of a crop that a grower could market as fresh was limited week by week.
  • By restricting sales, such orders were intended to increase the prices that farmers received.

• The Labor Movement's Early Years

  • The first significant national labor organization was the Knights of Labor, founded among garment cutters in 1869 in Philadelphia, Pennsylvania, and dedicated to organizing all workers for their general welfare.
  • Gompers was its first president.
  • He followed a practical strategy of seeking higher wages and better working conditions -- priorities subsequently picked up by the entire union movement.
  • The government, in the name of public order, often provided federal troops to put down strikes.

• Labor Union Impacts on Equilibrium

  • Unions are organizations of workers that seek to improve working conditions and raise the equilibrium wage rate.
  • The most common purpose of associations or unions is maintaining or improving the conditions of employment, which may include the negotiation of wages, work rules, complaint procedures, promotions, benefits, workplace safety, and policies.
  • In order to achieve these goals unions engage in collective bargaining: the process of negotiation between a company's management and a labor union.

• Introduction to Market Exchange as an Allocative Mechanism

  • The conditions of the transfer are clearly specified.
  • In the diamond trade in New York City or on the farm in Iowa, participants may know and trust each other to meet the conditions of the market exchange.
  • A second advantage attributed to the market is that it is flexible and provides information and incentive to encourage agents to adapt quickly to changes in technology, supplies of inputs and environmental conditions.
  • In order for individuals and society to benefit from market exchange, there are two fundamental conditions that must hold.

• The Taylor Rule

  • The formula suggests short-term interest rates depending on changing economic conditions, in order to keep the economy stable in the short term, and minimize inflation over the long term.
  • The rule stipulates how much a central bank should change the nominal interest rate (real rate plus inflation) in response to changes in inflation, output, or other economic conditions.

• Types of Private Solutions

  • However, the theorem notes several conditions in order for such a solution to occur, including low transaction costs (the costs the parties incur by negotiating and coming to agreement) and well-defined property rights.
  • If the conditions are met, the bargaining parties are expected to reach an agreement where everyone is better off.

• Morality, Justice and a Stable Society

  • Adam Smith (1723-1790) is used to express these ideas here since he is generally regarded as one of the first writers to advocate a system based on morality, markets and law.
  • On the first page of Theory of Moral Sentiments, Smith writes:
  • It is placed in the countenance and behavior of those he lives with, which always mark when they entered into, and when they disapprove of his sentiments; and it is here that he first views the propriety and impropriety of his own passions, the beauty and deformity of his own mind" (Smith, TMS, p 204).
  • Smith recognizes that beneficence and morality cannot be the only mechanism that creates order in society.
  • "This disposition to admire, almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.

• Hypotheses and Tests

  • Economics, as a science, follows the scientific method in order to study data, observe patterns, and predict results of stimuli.
  • Economics, as a science, follows the scientific method in order to study data, observe patterns, and predict results of stimuli.
  • Economics follows these steps in order to study data and build principles:
  • Identify the problem - in the case of economics, this first step of the scientific method involves determining the focus or intent of the work.
  • First, an economist will ask himself if the data agrees with the hypothesis.

• The Special Case of Banking

  • To protect the government from undue financial risk, regulators supervise banks and order corrective action if the banks are found to be taking undue risks.
  • In many cases, these ventures proved to be unprofitable, especially when economic conditions turned unfavorable.
  • First, government deposit insurance protects small savers and helps maintain the stability of the banking system by reducing the danger of runs on banks.
  • Regulators also stress the importance of requiring banks to disclose their financial status; banks are likely to behave more responsibly if their activities and conditions are publicly known.