Why the cost that is relevant to decision is marginal cost

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Reference no: EM131919179

Problem

1. If a firm experiences diminishing marginal product, does this mean that total output decreases? Explain.

2. A firm is trying to decide whether it could earn higher profits by increasing its output. Explain to the firm's manager why the cost that is relevant to this decision is the marginal cost of the next unit of output, and not the average total cost.

Reference no: EM131919179

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