Chapter 9 Flashcards
marginal revenue
“additional” revenue from selling additional products
marginal costs
“additional” costs from selling additional products
relationship between marginal revenue and marginal costs
marginal revenues > marginal costs = profits increase
marginal revenues < marginal costs = profits decrease
marginal revenues = marginal costs = profits are maximized
price makers such as monopoly have control over their prices. therefore?
price makers should lower prices for products to sell more
relationship between marginal revenue and total revenue
+ marginal revenue = total revenue increases
- marginal revenue = total revenue decreases
zero marginal revenue = total revenue is maximized
relationship between marginal cost and price
higher marginal costs - more number of outputs - supply increases - price increases
low marginal costs - less number of outputs - supply decreases - price decreases
price takers such as perfect competiton have a fixed price. therefore?
price takers can sell as much as they want at the fixed market price
how to find total revenue in a graph
total revenue is half of the total demand
if total demand = 10
total revenue = 5
relationship between marginal cost and businesses operating at near capacity
marginal cost increases as output increases because inputs aren’t used efficiently.
relationship between marginal cost and businesses NOT operating at near capacity
marginal costs are constant as output increases because inputs are used efficiently.
recipe for profit maximization
- estimate marginal revenue and marginal costs
- find the highest price that allows you to sell the highest quantity where marginal revenue is greater than marginal cost
in a graph, if the marginal revenue line is above the marginal cost line
MR > MC
in a graph, if the marginal revenue line is below the marginal cost line
MR < MC
examples of fixed costs
rent and insurance
price discrimination
process of charging different customers different prices for the same product
