1
Q
Principle of Marginal Analysis
A
Every activity should continue until marginal benefit equals marginal cost
2
Q
Marginal Revenue
A
Change in total revenue generated by an additional unit of output
MR = Change TR / Change Q
3
Q
Optimal Output Rule
A
Profit is maximized by producing the quantity at which the marginal revenue of the last unit produced equals marginal cost
4
Q
Profit Maximizing Quantity
A
Where marginal revenue equals marginal cost
5
Q
Marginal Cost Curve
A
Shows how cost of producing one more unit depends on quantity already produced
6
Q
Marginal Revenue Curve
A
Shows how marginal revenue varies as output varies
7
Q
Profitable Production
A
- A firm’s long-run decision to produce should be based on economic profit
- A firm is profitable when selling optimal quantity of output at market price results in at least a normal profit
