of economics which I will go into more detail later on that are crucial to making a large purchase be it a home, car, or any other large ticket item that can have ramifications on other aspects of your lives. Next one needs to weigh the marginal costs and marginal benefits of their decision to see all aspects of the decision no matter how minute they may seem. There needs to be an understanding of the state of the current economy as well as the trends that point to where the economy may be going
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would be satisfied. Any firm in a competitive market, just like any other firm in the economy, tries to maximize profit (which equals total revenue minus total cost). Because marginal revenue for a competitive firm chooses quantity so that price equals marginal cost (Mankiw, 2007). In short, the firm’s marginal-cost curve is a supply curve. When a firm cannot recover its fixed cost, the firm will choose to shut down temporarily if the price of the good is less than the average variable cost
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objective is… a. To derive cost functions that, ultimately, we can combine with revenue functions to derive profit functions, in order to try and characterize the optimal behavior of the firm. b. Behavior of the average is driven by the marginal on the general production process i. Note how things appear in the Cobb-Douglas world 1. There is no specialization c. The SRPF is upward sloping everywhere. And, the slope of the SRPF is decreasing everywhere
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Case Interview Marathon Workshop Victor Cheng’s Case Interview Core Frameworks v1.0 By Victor Cheng www.caseinterview.com These materials provided on an “as is” basis with no warranty or guarantee expressed or implied. You use them at your own risk. This information is provided to you for free for non-commercial use. You are welcome to forward this to your friends provided you do not alter any of the content and keep the entire document in tact. I retain copyright ownership over these materials
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Chapter 2 The Cost Function LEARNING OBJECTIVES Chapter 2 addresses the following questions: Q1 What are different ways to describe cost behavior? Q2 What is a learning curve? Q3 What process is used to estimate future costs? Q4 How are the engineered estimate, account analysis, and two-point methods used to estimate cost functions? Q5 How does a scatter plot assist with categorizing a cost? Q6 How is regression analysis used to estimate a mixed cost function
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5 = 65 and when Q = 5 they are 2 2. c. d. e. f. N (5) = 50 + 20(5) − 5(5) = 25 . Marginal net benefits are MNB (Q ) = 20 − 10Q . Marginal net benefits when Q = 1 are MNB (1) = 20 − 10(1) = 10 and when Q = 5 they are MNB (5) = 20 − 10(5) = −30 . Setting MNB(Q ) = 20 − 10Q = 0 and solving for Q , we see that net benefits are maximized when Q = 2 . When net benefits are maximized at Q = 2 , marginal net benefits are zero. That is, MNB (2 ) = 20 − 10(2 ) = 0 . 4. a. The value of the firm
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4.0: ECONOMIC ANALYSIS The economic evaluation for build a new plant can be divided into four sections which are: 4.1) Estimation of Capital Costs 4.2) Estimation of Manufacturing Costs 4.3) Engineering Economic Analysis (cash flow and break-even point) 4.4) Profitability Analysis 4.1: Estimation of Capital Cost Based on 2001 Equipment | Cp˚ (RM) | Fp | FM | FBM˚ | FBM | CBM˚($) | CBM ($) | Reactor ( R-101 ) | 915.00 | 78.2 | 3.2 | 4.07 | 457.57 | 3724.05 |
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guarantees an increase in the return of its shareholders, and also prevents insolvency from occurring. In order for a business to understand profit maximization it must first comprehend the relationship between marginal revenue and cost. For a company to properly understand marginal revenue and cost, it would have to determine how it is related to total revenue (TR) and total cost (TC). The TR is the total amount of money that a firm gets from, selling their products; the calculation to determine
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that the marginal cost of producing one more yard of fabric is $7.60. If you decide to expand production by a little bit: a. average cost will rise. b. average cost will remain constant. c. average cost will fall. d. the impact on average cost is unknown. 2. One reason for economies of scale is: a. increased specialization as a firm builds larger factories. b. use of more labor-intensive production processes. c. problems in managing large operations. d. the law of diminishing marginal returns
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$8) × 100 = $200. b. For firms in perfect competition, marginal revenue and average revenue are equal. Since profit maximization also implies that marginal revenue is equal to marginal cost, marginal cost must be $10. c. Average fixed cost is equal to AFC /Q which is $200/100 = $2. Since average variable cost is equal to average total cost minus average fixed cost, AVC = $8 - $2 = $6. d. Since average total cost is less than marginal cost, average total cost must be rising. Therefore, the
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