A company in a competitive environment does not control prices. So the key to maximizing profit is choosing how much to produce. To do that, we need to factor in
A company in a competitive environment does not control prices. So the key to maximizing profit is choosing how much to produce. To do that, we need to factor in the costs involved in production. So what exactly are the costs? How do these costs influence how you maximize profit? And, remember, if you want to think like an economist, you must factor in opportunity cost!
In this video, we define profit, including how to calculate total revenue and total cost. We also go over fixed costs, variable costs, marginal revenue, and marginal cost.
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If Loan is Cost & Spending is Revenue. Then does economy achieves maximum profit when Marginal Loan = Marginal Spending?
Yes. You can imagine that you are taking a consumer loan for house improvements. The load you are taking or the money you are borrowing from the bank is a cost for you because you incur debt and you will have to pay out that debt. Each additional dollar you borrow has a cost, the cost you expect to pay. At the same time, each additional dollar you borrow also has a benefit, coming from the enjoyment you get when you spend on house improvements. When you decide how much to borrow, it's as if you made a sequence of the decisions with respect to each additional dollar you are borrowing. At some point you realize that the next dollar you will borrow has a higher cost than a benefit. At that point you decide to stop borrowing.
Why MC has to be always increasing with increase in production? Won't cost will fall if firm is operating on larger scale ? like Walmart and a small retail store?
You're thinking about economies of scale. This might help straighten it out: http://www.investopedia.com/ask/answers/013015/how-does-marginal-cost-pr...