This preview shows page 1. Sign up to view the full content.
Unformatted text preview: In Chapter 3: 18-SEP-2007 o Table 4.1 o On page 84 figure 4.2. o On page 86 figure 4.3. o Page 88 paragraph on margin cost. Example: o The night manager of McDonald's. The Big Macs have been selling at $3 but the production costs are $2/hamburger. All day long there has been a profit at $1/hamburger. o All of a sudden one last costumer comes in the door and everything has been shut down. o The costumer says he will pay $5. o The production of that big Mac is $4.99. o The manager is maximizing total profits although the profit is only $ 0.01. o It does not maximize total units. Profits are maximized were marginal costs (MC) = marginal revenue (MR). Outputs are symbolized by Y in economics. When an input is generating more output than the previous input the margin is going up. Even though margin is falling, as long as it is above average, it is good. Output margin: o When marginal is rising, the total output increases at an increasing rate. o This occurs until it reaches inflexion point. o Then it increases at a decreasing rate. o If you over produce, the output is going to be negative. o The average output cannot be negative; can be zero but not negative. o Zero is the point where producing something equals its costs. Test questions: o When average product (AP) is rising marginal product (MP) is above AP. o When marginal product is rising total product is increasing at an increasing rate. o When the average product is falling The total product is increasing at a decreasing rate or, Falling. o For average to rise margin must be above it. ...
View Full Document
- Fall '07