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December 12, 2018 

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MARGINAL REVENUE AND MARGINAL COST: A profit-maximizing firm produces the quantity of output that equates marginal revenue and marginal cost. This is one of three methods typically used to determine the profit-maximizing quantity of output produced by a firm. The other two methods are total revenue and total cost and profit curve. This marginal revenue and marginal cost approach to identifying profit-maximizing production can be accomplished using either a table of numbers of a set of curves. The end result is the same. Profit-maximizing production takes place at the quantity generating an equality between marginal revenue and marginal cost.

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UNEMPLOYMENT PROBLEMS:

The two key problems resulting from unemployment of resources, especially the unemployment of labor, are personal hardships and lost production. The owners of the unemployed resources suffer personal hardships due to the lack of income. The rest of society also suffers from unemployment due to the lack of available production.
The unemployment of resources, especially labor, is one of the more important macroeconomic issues facing economists and government leaders. The other macroeconomic issue with the same status is inflation. Concerns over unemployment that emerged during the Great Depression of the 1930s was largely responsible for developing the modern study of macroeconomics.

The devastating economic conditions of the 1930s, which at its depth saw one out of four workers unemployed, brought to the forefront the problems of unemployment and induced economists to develop theories to explain the unemployment and to suggest corrective policies. The reason that economists and policy makers have been and continue to be so concerned with unemployment stem from two key problems: personal hardships and lost production.

Personal Hardships

Unemployment creates personal hardships for the owners of the unemployed resources. When resources do not produce goods, their owners do not earn income. The loss of income results in less consumption and a lower living standard. While this problem applies to any resource, it is most important for labor. The owners of capital, land, and entrepreneurship often earn income from more than one resource. Thus a loss of income from one resource is not a total loss of income. Many workers, however, often earn income only from labor. The loss of income from labor might mean a total loss of income.

Many government programs and policies developed since the Great Depression have been designed explicitly to address personal hardships. One of the most noted programs is unemployment compensation, which is specifically designed to relieve personal hardships by providing workers with a source of income when they are unemployed. While other transfer payments (welfare and Social Security) are primarily designed to address other problems, they also provide a source of income to the unemployed.

The personal hardships suffered by the unemployed are of concern to government leaders for reasons that are both in the common good and somewhat more selfish.

  • In terms of the common good, the unemployed are members of society just like everyone else and deserve the opportunities to enjoy the fruits of a productive economy. An affluent society "should" be able to provide for everyone. In addition, social problems that cause personal hardships to other members of society tend to increase with the personal hardships of the unemployed, including crime, divorce, suicides, etc.

  • Government leaders are also concerned with the personal hardships of the unemployed for more selfish reasons. When the voting public is unhappy, they tend to elect new leaders and toss the old ones out of office. There are few things that voters like less than suffering the personal hardships that come with unemployment. Presidential elections have been decided on a few million votes. A typical business-cycle contraction can add four to five million workers to the ranks of the unemployed, enough votes to change the "employment" status of any incumbent President seeking re-election.

Lost Production

Unemployment also causes total production in the economy to decline. If fewer resources are engaged in production, fewer goods and services are produced. As suggested by the circular flow model, the severity of the connection between lost production and unemployment is magnified by the multiplier effect. An initial decline in the income, consumption, and production associated with unemployment triggers further declines in income, consumption, and production. As such, members of society, who might escape the direct immediate personal hardships of unemployment, often succumb to the indirect, multiplicative problems of lost production. Number-crunching economists have estimated that for each 1 percent rise in the unemployment rate, that gross domestic product declines by 3 percent.

Lost production is especially troublesome because it is an opportunity that is lost forever. This lost production delays society's efforts to increase living standards and address the problem of scarcity. That is, when an unemployed worker does NOT produce output today, that output can never be recouped. If a worker is unemployed on Monday, Monday's production is lost forever.

"But," someone might counter, "once an unemployed worker returns to work on Tuesday, then Monday's lost output can be produced, right?" Unfortunately the worker could have been employed producing Tuesday's output regardless. If Tuesday is spent producing Monday's output, when is the output for Tuesday produced? Wednesday? If so, when is Wednesday's output produced? Had the worker been employed on both Monday and Tuesday, then output would have been produced on both days.

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Recommended Citation:

UNEMPLOYMENT PROBLEMS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: December 12, 2018].


Check Out These Related Terms...

     | unemployment sources | unemployment rate | labor force | natural unemployment | employment-population ratio | alternative unemployment rates | unemployment reasons | unemployment rate, measurement problems |


Or For A Little Background...

     | unemployment | macroeconomic problems | factors of production | full employment | business cycles | contraction | circular flow | macroeconomic goals | production possibilities |


And For Further Study...

     | labor force participation rate | Current Population Survey | Bureau of Labor Statistics | unemployment, production possibilities | full employment, production possibilities | macroeconomic sectors | gross domestic product | macroeconomic markets | resource markets | inflation | stabilization policies | government functions | inflation problems | multiplier principle | recessionary gap | aggregate market analysis | Keynesian economics |


Related Websites (Will Open in New Window)...

     | Bureau of Labor Statistics | Current Population Survey Home Page |


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