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Lecture Notes Jan 27

Lecture Notes Jan 27 - Lecture Notes Jan 27 The firms total...

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Lecture Notes Jan 27 The firm’s total cost is the sum of its fixed and variable costs: o Total cost= fixed Cost + variable cost The firm’s marginal cost is the change in total cost divided by the corresponding change in output. o MC = Change TC/Change Q o MC = Change VC/Change Q How many to hire and how many to bats to produce o Depends on how much he can sell them for, he has to be a price-taker, looking at the prevailing market prices Choosing Output to Maximize Profit o If a company’s goal is to maximize its profit, it should continue to expand its output as long as the marginal benefit is at least as great as the marginal cost. o Example: Suppose the wholesale price of each bat (net of lumber of other materials costs is) $2.50 – How many bats should Louisville Slugger produce. When MB = MC o To confirm that the cost- benefit principle thus applied identifies the profit-maximizing number of bottles to produce, we can calculate profit level directly.
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