Order Code 82297526 Economics.doc - Running head BUSINESS COSTS 1 Business Costs XXXXX XXXX State University–xXXX Campus BUSINESS COSTS 2 Business

Order Code 82297526 Economics.doc - Running head BUSINESS...

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Running head: BUSINESS COSTS 1 Business Costs XXXXX XXXX State University–xXXX Campus
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BUSINESS COSTS 2 Business Costs Profit maximizing point: perfect competitive market Rationally, perfect competitive markets maximize their profits at a point where the gain and cost of producing an extra unit equal. Under perfect competion market, the average revenue is equal to the demand curve as weel as the marginal revenue (Bertoletti & Etro, 2016, p. 795). In other words, profit is maximized at the intersect of marginal revenue and marginal cost curves. At these point the margical cost curve cuts the marginal revenue curve form below. When these conditions are fulfilled, the firm is said to be at equilibrium. It is important to note that any cost incurred to potentially produce an extra unit can be classified as fixed or variable in the short run. However, in the long run, all factor costs incurred are classified as variables. In either case, marginal cost of producing an extra unit must equate with marginal revenue of that unit for the firm to earn optimal profit. In this case herein, an extra cost of producing chocolate chips cookies must equate to the marginal revenue earned by the firm from selling the cookies. This can be determined as follows; It is given that the price of 1 dozen of cookies is being sold at $5. In this case, taking an assumption that at zero price, quantity sold equates to zero, then a demand curve is developed as follows; The slope of the demand curve is calculated as follows;
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BUSINESS COSTS 3 In this case, the negative sign represents the slope of the demand curve. The inverse demand
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  • Spring '16
  • Mugenda

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