marginal conditions for optimality

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The equality of marginal benefit and marginal cost as a characterization of an optimal choice. This optimality condition arises throughout economics and is a necessary and sufficient condition when the objective function is strictly concave, the constraint set strictly convex, the functions involved are differentiable, and the optimal choice is interior to the constraint set. The wide applicability is achieved by appropriate definition of marginal benefit and marginal cost. For example, the profit-maximizing output for a monopoly firm occurs where marginal revenue equals marginal cost. In this example, the benefit is measured by revenue.

Subjects: Economics.

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