Question

Firms typically make production decisions based on marginal revenue and cost, rather than total revenue and cost

Answer 1

Answer:

true

Explanation:

Businesses and individuals all think (or should think) on the margin, and make decisions based in the margin. Thinking on the margin refers to leaving behind past decisions because they cannot be changed, and concentrating on future decisions. E.g. you are thirsty and drink Coke, after you drink it you will not be thirsty and will concentrate on something else, not on satisfying your thirst.

The same happens with businesses, they focus on the future and must decide what actions to take based on the future of the business, not on its past.

This is where marginal revenue and marginal cost enter the scene:

• marginal revenue = revenue generated by selling one additional unit of output.
• marginal cost = cost incurred by producing one additional unit of output.

Businesses must make decisions and take actions considering future costs ⇒ marginal costs, and future revenue ⇒ marginal revenue. Also, businesses will always maximize their accounting profit (and make their economic profit = 0) when their marginal revenue = marginal cost.

Answer 2

Answer:

True

Explanation:

Marginal cost is defined as the change that will occur in total cost when one more unit of product is produced. That is, it tells us how much the total cost is changing when the company varies its production level, for this we must also know how much the production of the last unit costs us. The figure shows the increase in total cost when an additional unit is produced.

Administrators make decisions that define how a company achieves its goals. Many of these goals have financial aspects, such as income and profit targets. The level of costs included in these decisions has a primary impact on the company's finances. A reliable report of the real costs, the precise estimation of the projected costs and the adequate integration of these costs in the administrative decisions, form a basic component in the business operations that reach the objectives and goals of the company.