Define the Ratchet Effect and Generate an Example for It

question 24

Essay

Define the ratchet effect and generate an example for it (excluding the example of the hammer in the textbook).

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Definitions:

Marginal Revenue

The additional earnings obtained from the sale of one extra unit of a product or service.

Average Total Cost

The total cost of production divided by the number of units produced, representing the average cost per unit.

Average Variable Cost

The sum of all costs that vary with output levels, when divided by the total output produced.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good that consumers are willing to purchase at various prices.