CLEP Microeconomics covers the fundamental concepts of microeconomic theory, including supply and demand, market structures, and the behavior of consumers and firms.
Producers face different costs when creating goods or services. Understanding these costs helps explain business decisions.
Firms want the biggest gap between total revenue and total cost. The magic rule: produce until the extra revenue from selling one more unit (marginal revenue) equals the extra cost of making it (marginal cost).
\[ \text{Profit Maximization: } MR = MC \]
This logic explains why companies run limited-time offers or increase production during peak demand.
A pizzeria increases production during lunch rush, but stops adding pizzas when the extra cost is more than the extra sales.
A factory with high fixed costs tries to produce enough to spread those costs over more units.
Profit-maximizing firms balance costs and revenues, producing where marginal cost equals marginal revenue.