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Good evening, Will. How's business?
To be honest, I don't know if business is reaching it's full potential...
I can help! But I need to know the cost of making those chairs first.
Alright! The cost of making 3 chairs is $10 and the cost of making 4 chairs is $30.
Since the marginal cost of those chairs equals the marginal revenue, your business is alright.
What a relief! Thank you!
Will is a carpenter and has his own business. The market price for chairs is $20, and Will currently makes 4 chairs a day.
Since the market price of chairs is $20, Will earns a constant marginal revenue of $20.
From the given information, the economist was able to calculate the marginal cost to be $20 by doing [(30-10)/1], which is the additional cost of producing one more chair.
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