2. Profit maximization can also be determined by looking at the marginal revenue to marginal cost approach. Marginal revenue is the change in total revenue resulting from the sale of an additional unit of product. Marginal cost is the cost of producing that one extra unit. To find if profits are maximized, marginal cost is subtracted from marginal revenue. Profit maximization occurs when marginal revenue exceeds marginal cost. This approach is only used if deemed profitable, if not, it is best to not produce extra.…
A2. Marginal revenue (MR) is extra profit a company makes selling one more unit of a product. Marginal cost (MC) is the expenditure to the company to produce one more product. This is calculated taking the total cost (TC) of the last product made and subtracting the total cost (TC) of the product before that. The graph shows, it costs $30 to make one product and $50 to make two. (MC) is $50 minus $30, equalling $20. (MC) goes up $10 for every additional product. This increases from making one product up until eight. The profit is at a maximum at this point (Line 8 Bolded). The marginal revenue (MR) then decreases with each additional product made after the eighth. ("marginal cost," 2013)…
Profits will be maximised where the difference between total revenue and total cost is at its greatest shown in the diagram below at the level of output where Marginal Cost (MC) = Marginal Revenue (MR).…
In the second approach, Company A first determines its marginal revenue which is the total change in revenue resulting from selling one additional widget. Next it determines its marginal cost which is the total change in cost for producing that additional widget. In an effort to maximize their profit, Company A would look to produce it’s widgets at the output level that is closest to the point where marginal revenue is equal to marginal cost.…
Marginal Cost can be termed as the change in the total cost from an additional unit that is produced by a firm. Example, the total cost when 10 units are produced is $30, and total cost incurred when 11 units are produced is $33.…
Profit maximization in terms of total revenue to total cost can be approached in two different ways. The first is to take total revenue and total cost for a time period and subtract total cost from total revenue for each unit produced to determine how many units produced would yield the highest profit. To do this in this scenario I have illustrated it in the chart below.…
C. Marginal cost (MC) as the cost to produce just one more unit. As an example form Exhibit 1 below, The marginal cost (MC) from producing the 8th unit (one more than 7) is $80. As can be seen in exhibit 1 below, marginal cost (MC) increases as the number of units produced increases.…
The marginal revenue is the change in total revenue resulting from selling one more unit of output. If marginal revenue is greater than marginal cost then total revenue would be increased. If marginal cost is greater than marginal revenue, it would then decrease. Furthermore, if both marginal revenue and marginal cost are equal, it would remain constant. In this given scenario, we can calculate the…
Marginal cost is determined by taking the change in total cost and dividing it by the change in quantity.…
Costs incurred by a company are put into groups: fixed costs and variable costs. The fixed costs are incurred at any business level. An example of these costs are wages, equipment, rent, and general upkeep. Variable costs change with the level of product output. Example of variable costs are the materials used to produce something. Fixed cost and variable cost put together is the total cost. Marginal cost comes in when the company produces an additional unit. To figure marginal cost a company figures the change in total cost (TC) and the change in quantity (Q). TC/Q = (MC) marginal cost. (Wikipedia, n.d.) Marginal revenue is the profit made by producing the additional unit. The revenue made by a company for selling all units is its total revenue (TR). Total revenue is figured with price (P) x quantity (Q) = TR (total revenue). (Wikipedia, n.d.) Once that figure is obtained marginal revenue which is the sale of an extra unit can be figured by taking (TR) total revenue / (Q) quantity of the extra units being produced to = (MR) marginal revenue. (Wikipedia, n.d.) Profit maximization determines the best output and price levels a company needs to maximize profit which is figured by (TR) total revenue - (TC) total cost = (P) profit. When (MR) Marginal revenue – (MC) marginal cost = 0. (Wikipedia, n.d.) Companies will adjust their prices and output to reach their profit goal. Once output reaches the point of marginal revenue and marginal cost being equal the marginal profit will equal zero. The units produced at that output level is the one that maximizes profit. On the other hand if the marginal revenue…
The definition of Marginal revenue is the extra revenue that will be made when one additional unit of any given product is sold. The sum of sales or a pre-determined quantity of a particular product is called total revenue. “Marginal revenue tells a firm how much additional money selling each additional product will gross; total revenue tells a firm how much they will make by selling any given quantity. Marginal cost is the cost a firm incurs to produce one more unit of a product. Total cost is the total cost economically a firm pays for producing a given quantity of a certain product.” (Stariana, November 2012)…
Gwartney states that profits are; “An excess of sales revenue relative to the opportunity cost of production. The cost component includes the opportunity cost of all resources, including those owned by the firm. Therefore, profit accrues only when the value of the good produced is greater than the value of the resources used for its production.” An example of a profit would be bakery offers a cheesecake for $20 and the total cost to make the cheesecake is $15 this give the bakery a $5 profit per cheesecake.…
o Marginal Revenue is computed by finding the difference of the previous two quantities (total revenue of pair #2 - #1)…
D) The main reason someone opens a business or invests is the make a profit. Profit is the positive gain from an investment or business operation after subtracting all the expenses. There are two different ways to find profit the economic way or the accounting way. The economic profit is found by subtracting economic costs from total revenue. Mean while accounting profit is found by subtracting just explicit cost from revenue. The economic profit is not often used by accounting because accounting is calculated based on the Generally Accepted Accounting Principles (GAAP) which use facts while the economic profit uses possibilities.…
The goal of a firm is to maximize profits, to get as much for the firm as possible. In the perfect competition, each firm maximizes profits where marginal revenue (MR) equals marginal cost (MC). That is, the additional revenue from producing additional quantity equals the additional cost incurred in producing that quantity. At an output where MR is greater than MC, increasing production increases profits. If MR is less than MC, decreasing production increases profits. Therefore, MR=MC is the profit-maximization condition. In perfect completion, the price is a given for each firm, P=MR. This is because the fixed price per unit is the additional revenue the firm can expect to earn by selling additional quantity. The firm’s profit- maximization condition becomes P=MR=MC. In the long run, however, all costs are variable. All firms in a perfectly competitive market make zero economic profit in the long run, because if profit was being made, more firms would enter the market and market prices would decline until all firms made zero profit.…