1. Deriving Marginalism
Liem Tran
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2. ? 5 1 10 15 2 13 18 3 20 4 16 21 23 6 25 30 7 36 41
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3. Quantities Produced
Fixed Cost
Variable Cost
Total Cost 5 1 10 15 2 13 18 3 20 4 16 21 23 6 25 30 7 36 41
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4. Cost to Produce One Additional Item
Quantities Produced
Fixed Cost
Variable Cost
Total Cost
Cost to Produce One Additional Item 5 1 10 15 2 13 18 3 20 4 16 21 23 6 25 30 7 36 41
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5. Quantities Produced
Fixed Cost
Variable Cost
Total Cost
Marginal Cost 5 1 10 15 2 13 18 3 20 4 16 21 23 6 25 30 7 36 41 11
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6. Marginal Cost
Marginal cost is the increase in a producer’s total cost when it increases its output by one unit
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7. Marginal Cost Function
MC = C’(x) MC
Where:
C= TC = Total Cost (or simply Cost)
X = Quantity of Output
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8. Alternative Marginal Cost Function Expositions
By definition: FC + VC = TC
We know ∆FC + ∆VC = ∆TC
Moreover, (by definition) ∆FC = 0,
Therefore, ∆VC = ∆TC
MC = C’(x)
Alternatively, MC
Or simply,
Where:
FC = Fixed Costs
VC = Variable Costs
TC = Total Cost
C = Costs, which is identical to TC
Q = Quantity of Output
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9. Revenue
Total Revenue: the overall measure of a company’s income, including its sales, for a given period of time. This number is not the same as profits or earning of the company; however, total revenue is part of the calculation of profit.
Marginal Revenue (MR) is the derivative of Total Revenue (TR) with respect to the Quantity of output; simplified, MR is the revenue associated with one additional unit of production.
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10. Profit Function Profit = Revenue – Cost P(x) = R(x) - C(x)
Profit maximization occurs when P’(x) = 0
Which means 0 = R’(x) – C’(x)
C’(x) = R’(x)
Marginal Cost = Marginal Revenue
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