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
total = total cost ÷ output

5. Costs associated with levels of output

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

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

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

9. Firm would only produce output OBE . AR-ATC=0
P=MR=AR
Zero economic profit
if price falls to PBE.
Firm would only produce
output OBE . AR-ATC=0

10. Economic losses if price falls to PSD. Firm would shut down
P=MR=AR
Economic losses
if price falls to PSD.
Firm would shut down
below output OSD

11. Where is the firm’s supply curve?
P=MR=AR

12. Marginal cost curve above AVC curve?
P=MR=AR

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
input = wage rate, rental rate, etc.
cost

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

16. 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 D C B E F G 5 I H J

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

18. D
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. C B E F G 5 I H J

19. If you went beyond the point where MVP=MIC, you begin incurring losses.5 I H J