Answer to Question #138526 in Microeconomics for angula medusalem

Question

c. How would you describe in words the pattern of marginal returns? The pattern of marginal costs?

Answer 1

Marginal profit is the dollar-denominated price minus average variable costs. Multiplied by sales, this will be called gross profit. Marginal means that this profit reflects the share that each sale contributes to the total profit. The marginal profit percentage is determined by the dollar value of that profit divided by the price and multiplied by 100%. To achieve the target marginal profit percentage, you must either reduce variable costs or increase the price.

For any type of market, the firm maximizes profits (the difference between revenue and costs), reaching the volume of output at which marginal revenue is equal to marginal cost (MR = MC).