Tag Archives: MC=MR

Using M&M’s to teach MC=MR

Today I held the annual M&M’s competition with my A2 class. I use them to teach MC=MR also Minimum (loss) and Maximum (profit).

Profit is maximised at the rate of output where the positive difference between total revenues and total costs is the greatest – see graph above. Using marginal analysis, the perfectly competitive firm will produce at a rate of output where marginal revenue equals marginal cost. Marginal revenue, however, is equal to price. Therefore, the perfectly competitive firm produces at an output rate where marginal cost equals the price of output. Remember that the firm will make profits as long as the extra revenue brought in from selling the last unit of output(MR) is greater than the extra cost which is incurred in producing it (MC). Below are some Perfect Competition and Monopolistic Competition graphs created by my A2 class using M&M’s

What your airline fare is spent on

Here is a great article, graphic and video from the Wall Street Journal. They look at an average of 100 passengers on a flight and what each passenger pays for.

29 cover fuel
20 cover salaries of airlines
16 cover ownership costs
14 cover Government fees taxes
11 cover Maintenance
9 cover other costs – catering etc
1 = Profit

But airline operating costs are off the charts compared with other industries. In a business where much of the work is done outside, routine storms can eat into margins. And there are many moving parts to flying people through the air, and many safety costs required by regulation.

While ticket revenue pays the bulk of these costs, “ancillary revenue” supplements the flight by another $18 per person on a 100-passenger flight. That includes fees for checked baggage, seat assignments, ticket penalties and revenue from cargo.

To go to the full article, graphic and video – click link below:

How airlines spend your airfare