Economics Essay Example | Topics and Well Written Essays - 2500 words - 5

Economics - Essay Example This is known as satisficing. If the firm wants to maximize its profits it will try to equate marginal revenue and marginal cost. Marginal cost refers to the increase in the total costs of a firm caused by increasing its output by one extra unit. From the viewpoint of economists, firms normally produce at a point at which the marginal costs are positive. Marginal revenue refers to the receipt from selling an extra unit of output. On the other hand, when the firms go for satisficing the managers of a firm need to make enough profit in order to satisfy the demands of their shareholders. Satisficing or profit satisficing denotes the managerial behavior that attempts to achieve some level profits. Once the satisfactory level of profits has been achieved, the managers are free to maximize their rewards that can be available from the particular company. All the markets are in equilibrium when the demand and supply are equal. Equilibrium or equilibrium price refers to the price level of a particular commodity at which quantity demanded equals quantity supplied. Here the price and quantity demanded are having a negative relation. The variables which are negatively related, for example price and quantity demanded, have an inverse relation. Here the price is a determinant and the quantity is determined. An increase in the price leads to a fall in the quantity demanded and vice versa. There are many inversely related variables in economics, for example rate of interest and borrowing, economic growth and balance of payment, unemployment and inflation etc, that is an increase in the rate of interest, an increase in the economic growth and an increase in the unemployment will cause a fall in borrowing, balance of payment and unemployment respectively. The actual market always tends towards the equilibrium price where demand and supply curves cut each other.