ECO202Y1 Study Guide - Marginal Cost, Average Variable Cost
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4 elements of the relationship between average and marginal product: (1) maximum marginal product occurs at a lower level of output than maximum average product (2) marginal product =average product => maximum average product (3) if marginal product > average product => average product is increasing (4) if marginal product < average product, => average product is decreasing. (5) marginal product=0 and shifts from positive to negative at the point of maximum possible output. The competitive firm"s short run supply curve is the portion of its marginal cost curve that lies above average variable cost. 3 general rules for profit maximization (1) if marginal revenue is greater than marginal cost, the frim should increase it"s output (2) if marginal cost is greater than marginal revenue, the firm should decrease its output (3) at the profit maximizing level of output, marginal revenue and marginal cost are exactly the equal.