Reference no: EM131499428

Question: In economics, the term "marginal" means additional. Marginal product of labor means the additional units of output produced as a result of hiring one additional unit of labor (one worker), marginal cost refers to the additional cost associated with employing an additional factor of production, and marginal revenue refers to the additional revenue (price multiplied by quantity) a producer receives as a result of producing and selling an additional unit of output.

We often hear that XYZ Company's total revenues increased by 15%, which is perceived as positive news. However, the term "total" revenue does not tell the whole story about gains or losses. Moreover, sometimes we hear that a producer managed to cut down their total operation costs, which is also perceived as positive indicator. However, does cost cutting guarantee higher profits?

Discuss some aspects of marginal analysis that producers have to take into consideration to determine their production level in a competitive market. Make sure to explain what each concept of marginal analysis means and how it relates to other concepts (hint: marginal cost and average variable cost, marginal revenue and average revenue). Also, explain at what point in the production process producers make profits, break even, or must shutdown their operations. Use real world examples from your workplace, or create a scenario to simplify your answer.

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