ECO105Y1 Chapter Notes - Chapter 9: Creative Destruction, Marginal Cost, Landing Fee
Document Summary
The business recipe for maximum profits: estimate marginal revenues and marginal costs, and then set the highest price that allows you to sell the highest quantity for which marginal revenue is greater than marginal cost. Marginal revenue - additional revenue from more sales or from selling one more unit. Calculate as the change in total revenue / revenue from selling one more unit of the product or service. Additional cost must pay to produce more units. Fixed cost (sunk cost) do not change (e. g. rent, insurance) with change in the quantity of output. Fixed cost do not affect smart decisions. Choose when marginal revenues are greater than marginal costs. Key 1 of smart choice choose only when additional benefits are greater than additional opportunity cost. One price rule when buyers can resell. Most products and services have only one price, not a different for each customer. Lower price customer resells the product to make money.