Rationality Principle in Economics †Free Samples to Students

Question: Discuss about the Rationality Principle in Economics. Answer: Introduction Determining the size of a shopping complex or shopping center have to be measured, considering the estimated footfall and estimated demand among the shopkeepers. The estimated footfalls of the customers will reveal important information about the rental rate that the shopkeepers will be willing to pay. In this regard it can be stated that in this report the decision regarding the optimal size of shopping center have been made based on the willingness of magna to pay for leasing the land for a time frame of 20 years. In this report the calculation of the profit have been further made based on optimum size of the shopping center. The appropriateness of the decision to hire a local consultant has been made in this regard. The tasks of constructing the shopping center have been based on existing demand for the retail space. In this regard, it can be stated that in this regard it would take one-year time to build the shopping centre. The construction cost will be on $100 per square meter construction of the shopping center. The maintenance will be $1 for per meter square meter of floor space. In this regard, it can be stated that as per mike estimation the parcel of land that was to be leased could support a shopping center of 60, 000 square meters (O'sullivan, 2007). In this case it can be stated that therefore the cost incurred in the construction maintenance of the shopping center can be estimated to be 60000x100$= 6000000$ The maintenance cost for the construction would be 6000x1$ = 6000$ The costs of the land have to be added. In this regard, it can be stated that the life of the project will be 600000$. In this regard, it can be stated that the life of the project has been estimated to be 20 years in this regard. It can be stated that the maintenance cost of the shopping center as per mikes report will be 1200000$. It can be further stated that while charging the rent for the shopkeepers this will also have to be kept in mind, the willingness of the retailers to pay for space in shopping center will be a decreasing function of its total size. Therefore, it can be stated that the larger space requirement they have, they will be willing to pay less per square meter of space they are wanting. In this regard it can be further stated that the pricing strategy will have to be made on this basis (Mavron, Phillips, 2007). Cost benefit analysis In this regard it has been evident from earlier rate mentioned by Mike states that the function of the rent that the customers are willing to pay will be as followed. R= 60-0.001s and r=50-0.001s. In this regard it has been evident that before charging the price to the customer it has to be determined that what is the actual demand equation of space among the retailers. In this regard, it can be stated that if the demand function is not properly identified it will not be able to optimize its revenue. If the revenue for the project is not properly optimized it might result in loss or loss in opportunity, which otherwise the firm might have enjoyed (Mankiw, 2014). In this regard it can be stated that the revenue that the firm might enjoy if the demand function is R=60-0.001s, in this case it can be stated that if a single organization rents the entire space, the firm will not be willing to pay any rent rather will opt for a different form of arrangement (Kirchgssner, 2005). In this reg ard it can be stated that there will be a fall in the rent for every 1000 dollars additionally charged. Similarly in this context in this context it can be stated that for the demand curve r= 50-0.001s. In this regard, it can be stated that for this demand curve the company needs to block the areas into compartments of accordingly. In this case, it can be stated that for 1 unit quantity supplied, the company can charge a price of 50 dollars. In this regard, it can be stated that with increase in quantity supplied, the price of the unit will fall. Therefore the total revenue that can be earned from the two demand functions are 2, 99999, 40 dollars per year and 3599940 year. From here, it can be stated that the second demand function will be more profitable for the organization constructing it; but it needs to be determined whether it will be applicable in the market (Ederer, 2008). Therefore the optimal output for r=60-0.001s will be 30000 units and r= 50-0.001s will be 25000 square meters (Mavron Phillips, 2007) In this regard, it can be stated that the company needs to limits its decision of building a 60000 square meter shopping center (Mankiw, 2008). Therefore, in this case the total revenues will be 1799970 $. In case of demand function1 and for demand function 2 the revenue will be 1249975 dollars. In this case, it can be stated that the organization should focus on the demand curve 1 as the revenue generated from this. The cost associated with demand function 1 for a period of 20 years will be 3000240 dollars. The revenue generated for period of 20 years will be 35999400. This will also help in maximizing the profit. Therefore, the profit under demand curve 1 will be 32999160 dollars. The profit under demand curve 2 will be 24999500-2500240=22499260 dollars. In this regard it can be stated demand curve one will maximize profit for the organization (Bowles, 2009). Role of the expert In this regard, the company can employ an expert (David Smith) in this field to further ratify the demand scenario. In this regard, it can be further stated that the company can obviously afford an expert in this regard and will not obviously affect the firm in any ways. This will rather help the organization to ensure success Conclusion In this regard, it has been evident that the company needs to adopt policies based on the profit and revenue. It has been apparent that the company needs to adopt the first demand curve and based on that magna needs to pay for the lease of 20 years. This require further investigation and in this regard the company can hire an expert in the field in this regard. The cost benefit analysis have revealed a lot about what needs to be done and it has been apparent from here that the company should certainly focus on the first demand curve in order to ensure success and should expand the size of the building beyond 30000square meters. References Kirchgssner, G. (2005). The weak rationality principle in economics. Ederer, R. J. (2008). A principle for economics.Catholic Social Science Review,13, 107-116. Mankiw, N. (2006).Principles of microeconomics(Vol. 10). Cengage Learning. Gans, J., King, S., Stonecash, R., Mankiw, N. G. (2011).Principles of economics. Cengage Learning Mankiw, N. G. (2014).Essentials of economics. Cengage learning. O'sullivan, A. (2007).Urban economics. McGraw-Hill/Irwin. Mavron, V. C., Phillips, T. N. (2007). Maxima and Minima.Elements of Mathematics for Economics and Finance, 137-158. Bowles, S. (2009).Microeconomics: behavior, institutions, and evolution. Princeton University Press.