Egt1 Task1 Essay Example
EGT Task 1 In this essay the relationship between marginal revenue and marginal cost and the importance of these concepts in the business world to help explain profit maximization. Profit maximization is the process which determines the price and output level that has the greatest profit return. The process can be approached in various ways.
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
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