EC120 Chapter Notes - Chapter 14: Market Power, Marginal Revenue, Average Variable Cost
30
EC120 Full Course Notes
Verified Note
30 documents
Document Summary
Ec120 chapter 14: firms in competitive markets. An example of profit maximization: looking at a dairy company that sells 4-l jugs of milk at per unit. Fixed costs are and variable costs depend on quantity produced: profit-maximizing quantity can be found by comparing the marginal revenue and the marginal cost for each unit produced. If marginal revenue is greater than marginal cost, the company should increase production of milk because it will put more money in their pockets than it take out. If marginal revenue is less than marginal cost, the company should decrease production. If the company thinks at the margin and makes incremental adjustments to the levels of production they are naturally led to produce the profit- maximizing quantity. Spilt milk and other sunk costs: sunk cost: a cost that has already been committed and cannot be recovered, sunk costs are irrelevant when deciding how much to produce, e. g.
