Using the Language of Calculus to Explain the Following Economic

question 38

Essay

Using the language of calculus to explain the following economic principles for output price decisions.(a) Maximum profit requires the firm to choose the level of output at which marginal revenue is equal to marginal cost.(b) A change in fixed cost will not change the profit maximizing level of output.(c) It may pay a firm to expand its output if it is selling at a price greater than marginal cost, even if that price happens to be below average cost.

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Definitions:

Short Run

An interval in economic studies where a minimum of one production element remains constant and is unalterable.

Variable Costs

Expenses that change in proportion to the activity of a business.

Short Run

A time period in economics during which at least one input, such as plant size, is fixed and cannot be altered.

Profit Maximization

The procedure through which a business identifies the pricing and production volume that yields the highest earnings.