Question

Ch. 4: Extent (how much) decisions

a. define and calculate average costs?

b. define marginal cost and marginal revenue?

c. What is a marginal curve’s relationship to its total curve?

d. Regarding marginal analysis:

e. why is average costs are not appropriate in making extent decisions?

f. Explain what is defined by MR=MC?

g. Explain if MR>MC, and why?

h. Explain if MR<MC, and why?

Testbook use for this assignment is ;

Managerial Economics

Froeb Chapters

Answer 1

a) Average cost is the per unit cost. It is calculated as total cost divided by number of output produced.

b) Marginal cost is the addition to total cost due to addition of one more unit of output. Marginal revenue is the addition to total revenue due to sale of the additional unit of output.

c) Marginal curve is the slope of the total's cost. So when total curve increases at increasing rate, marginal curve increases. When total curve increases at a decreasing rate, marginal curve decreases. When total curve increases at a constant rate, marginal Curve is constant.

d) According to marginal analysis, equilibrium is attained at the point where marginal revenue equals marginal cost. The sufficient condition is that Marginal cost should be increasing after the equilibrium point.