Question

Explain why for many mass produced goods the private marginal cost is less than 3/4 of average unsunk cost in a period that includes the year before and the year after production starts.

Answer 1

Marginal cost is equal to private marginal cost. The private marginal cost is less than 3/4 of average sunk cost then the marginal returns are not equal to marginal cost.

Step-by-step explanation:

Every business exist to earn profits. There will be profit maximization for a business when marginal cost equals the marginal cost. The sunk cost is not considered when analyzing a business operation as it is a cost which cannot be recovered anyway. If the sunk cost is 3/4 of average marginal cost then the returns will be lower and perfect equilibrium will not be reached.