Question

WHAT DOES THE CURRENT PRODUCER PRICE INDEX TELL US?

For real life companies prices for the goods and services they use for production are constantly changing. Check out the current Bureau of Labor Producer Price Index (https://www.bls.gov/news.release/pdf/ppi.pdf). What was the general trend for producer prices (cost of goods used in production) this month? What was the trend for the year? Would this likely represent changes in variable costs or fixed costs? How would it affect marginal cost? If the selling price remained the same, how would the profit maximizing rate of output change?

Answer 1

It has been observed that the producer prices has been showing an upward trend this year because producer prices are rising. The trend for this year shows an upward trend in producer prices. This is because variable cost this year has been rising because of increase in the wages paid to the workers. Yes, this has shifted the marginal cost of the firms upward.If the selling price remained the same, the profit maximizing rate of output will decline as leftward shift of the cost curve lead to fall in output.