Purchase Solution

Price versus Marginal Cost

Not what you're looking for?

Ask Custom Question

The wise business manager knows the best price and cost scenario occurs when the
price of the company's product equals marginal cost. Explain why this is so.

Purchase this Solution
Solution Summary

The wise business manager knows the best price and cost scenario occurs when the
price of the company's product equals marginal cost. Explain why this is so.

Solution Preview

Price vs. Marginal cost

The wise business manager knows the best price and cost scenario occurs when the price of the company's product equals marginal cost. Explain why this is so.

Executive Summary
For the wise business manager in perfect competition this means, in the short-run, that price is equal to marginal cost and equal to marginal revenue. In the long-run, price is also equal to average cost. In theory, perfect competition generates the perfect price, i.e. the price reflects the true value of the commodity ensuring the 'efficient' allocation of resources, i.e. inputs. Furthermore, the inability of individual participants to affect price or cost variables insures that anonymous, impersonal market forces determine the outcome of exchange. In perfect competition there can be no long-run economic profits or losses ...

Purchase this Solution
Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

View More Free Quizzes
Related BrainMass Solutions

  • Perfect vs imperfect competition

    revenue exceeds the marginal cost.

  • Monopoly versus perfect competition

    They take the price as given, which is also equal to their demand curve, and making their production decision based on its marginal cost equal to the common marginal revenue.

  • Perfectly Competitive Equilibrium

    The total cost and marginal cost functions for Bada Bing are TC = $1,000,000 + $20Q + $0.0001Q2 MC = δTC/δQ = $20 + $0.0002Q where Q is the number of chips produced. A.

  • Substitution and income effects

    The total revenue at different levels of output and marginal revenue have to be tabulated. Similarly, the total cost at different levels of output has to be tabulated along with marginal costs.

  • 3 Case Studies In Cost-Benefit Analysis

    To determine whether to raise price, the bank managers experimented with a number of higher prices (in 25 cent increments) at selected ATMs: Fee # of Transactions $2.00 1000 $1.75 1500 $1.50 2000 $1.25 2500 $1.00 3000 The marginal

  • Relationship between market power and price

    Market power references an organization's ability to raise a price above the marginal cost in order to make a profit.

  • Optimal Price and Quantity Calculations

    Marginal costs are the derivative of the total cost function, with respect to Q moviegoers only.

  • Sports economy, Porter and Thomas

    Be sure to use the ideas of marginal cost versus average cost in your discussion.

  • Managerial Decisions

    For example, buying a house versus renting may the choice when interest rates are 5%, but if they go to 20%, renting may be the better choice. One situation is when the marginal revenue (price) is less than the average variable price.

View More Related Solutions