2- Why is the difference between marginal cost and (long run) average cost (of pharmaceuticals) important in the political discussions about whether drugs are over-priced?
ANSWER:
Average Cost vs Marginal Cost:
Average costs are calculated using total costs of production, while
marginal costs considers the cost of one additional unit.
Marginal and Average Costs:
Marginal and Average costs are related but different.
TERMS
Average
Cost:
In economics, average cost or unit cost is equal to total cost
divided by the number of goods produced.
Marginal
cost:
The increase in cost that accompanies a unit increase in output;
the partial derivative of the cost function with respect to output.
Additional cost associated with producing one more unit of
output.
Marginal
analysis:
The process of making a decision by weighing the incremental
effects on costs and benefits.
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2- Why is the difference between marginal cost and (long run) average cost (of pharmaceuticals) important...
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