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    Marginal costs

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    Do profit maximizing managers really decide the exact quantity to produce (based on the principle that they would continue to produce as long as marginal revenue exceeds marginal cost) or do they make decisions to accept or reject opportunities to produce additional products for a customer order? If they make decisions on whether to accept a new order or not, how do you reconcile that with the marginal revenue equals marginal cost rule"?

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    Solution:
    Marginal cost is the increase in total cost when output is increased by 1 unit.
    Marginal revenue is the increase in total revenue when output is increased by 1 unit.
    Marginal revenue exceeds marginal cost; the firm should increase its output. Producing and selling 1 more units adds more to total revenue than to total cost, thereby increasing total profit.
    If marginal cost exceeds marginal revenue, the extra unit of output reduces total profit. Thus we can use marginal cost and ...

    Solution Summary

    Marginal costs are exhibited.

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