There are plenty of situations where the marginal cost of an addition unit are zero or close to it: seats on an airplane or in a movie theater that are not full, empty rooms in a hotel -for examples What should businesses do?

There are plenty of situations where the marginal cost of an addition unit are zero or close to it: seats on an airplane or in a movie theater that are not full, empty rooms in a hotel -for examples What should businesses do? What do they do? If your answers are different, why?

Key points: marginal cost = change in the total costs or what does it cost to produce the next unit unique relationship between marginal and average costs if marginal is lower the average than average is decreasing if marginal is greater than average, than average is increasing Example: If your semester GPA ( marginal) is lower than your cumulative GPA (average), than your cumulative is going down. If your semester GPA is greater, then cumulative GPA increases. assuming continuous functions, when they intersect ( are equal to each other) average costs are minimized (graph page 294) Economics assumes decisions are made at the margins i.e. business should make decisions based on marginal costs.

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