1. Single Input- Output Relationships

2. Key Cost Relationships The following cost derivations play a key role in decision-making: Marginal cost =  total cost ÷  output

3. Key Cost Relationships The following cost derivations play a key role in decision-making: Marginal cost =  total cost ÷  output Average variable = total variable cost ÷ output cost

4. Key Cost Relationships The following cost derivations play a key role in decision-making: Marginal cost =  total cost ÷  output Average variable = total variable cost ÷ output cost Average total = total cost ÷ output cost

5. Costs associated with levels of output Page 102 in booklet

6. Profit maximizing level of output, where MR=MC Profit maximizing level of output, where MR=MC P=MR=AR $45 11.2 Page 102 in booklet

7. Average Profit = $17, or AR – ATC Average Profit = $17, or AR – ATC P=MR=AR $45-$28 $28 Page 102 in booklet

8. Grey area represents total economic profit if the price is $45… Grey area represents total economic profit if the price is $45… P=MR=AR 11.2  ($45 - $28) = $190.40 Page 102 in booklet

9. Zero economic profit if price falls to P BE. Firm would only produce output O BE. AR-ATC=0 Zero economic profit if price falls to P BE. Firm would only produce output O BE. AR-ATC=0 P=MR=AR Page 102 in booklet

10. Economic losses if price falls to P SD. Firm would shut down below output O SD Economic losses if price falls to P SD. Firm would shut down below output O SD P=MR=AR Page 102 in booklet

11. Where is the firm’s supply curve? Where is the firm’s supply curve? P=MR=AR Page 102 in booklet

12. P=MR=AR Marginal cost curve above AVC curve? Marginal cost curve above AVC curve? Page 102 in booklet

13. Key Input Relationships The following input-related derivations also play a key role in decision-making: Marginal value = marginal physical product × price product

14. Key Input Relationships The following input-related derivations also play a key role in decision-making: Marginal value = marginal physical product × price product Marginal input = wage rate, rental rate, etc. cost

15. 5 B C D E F G H I J Wage rate represents the MIC for labor Wage rate represents the MIC for labor Page 103 in booklet

16. 5 B C D E F G H I J Use a variable input like labor up to the point where the value received from the market equals the cost of another unit of input, or MVP=MIC Use a variable input like labor up to the point where the value received from the market equals the cost of another unit of input, or MVP=MIC Page 103 in booklet

17. 5 The area below the green lined MVP curve and above the green lined MIC curve represents cumulative net benefit. The area below the green lined MVP curve and above the green lined MIC curve represents cumulative net benefit. B C D E F G H I J Page 103 in booklet

18. 5 If you stopped at point E on the MVP curve, for example, you would be foregoing all of the potential profit lying to the right of that point up to where MVP=MIC. B C D E F G H I J Page 103 in booklet

19. 5 If you went beyond the point where MVP=MIC, you begin incurring losses. B C D E F G H I J Page 103 in booklet