Essay about Egt1 Task 1

702 WordsJul 10, 20133 Pages
Marginal Analysis Economics & Global Business Applications, EGT 1, Task 1 A. Explanation of profit maximization The total revenue, TR, is the overall amount of all sources of a business’s income. It consists of total sales or profit, over a period of time. The TR can be calculated by taking the price and multiplying it by the quantity. For example, if a business decides to retail another product and the total revenue does increase, thus the marginal revenue would be greater than zero. However, if the business decides to sell another product and the marginal revenue is zero, then there would not be any changes to the total revenue. To determine profit maximization, using the Total Revenue to Total Cost approach, consider the…show more content…
This increase in widgets will provide Company A with a MR of $140 dollars per widget. In addition, applying the same formula to the maximum of 15 widgets produced ($1200-150/15) also results in a MR of $70 per widget. In the provided scenario, Company A has experienced decreasing MR for every one more widget they produce. C. Calculation used to determine Marginal Cost In comparison, the marginal cost is the added cost of producing one more unit of output. It is determined by the change in total cost (TC) divided by the change in output (Q). MC= TC/Q. In the provided scenario, for Company A to produce one widget TC=$30, to produce two widgets TC=$50 thus the marginal cost was $20; furthermore the cost per widget to produce was $25. Marginal cost will continue to decrease for Company A until they reach their profit maximization of $42.86 per widget at 7 widgets. Marginal cost will then begin to decrease for every additional widget produced until the end result of 15 widgets with a MC that exceeds $80, also allowing TC to topple to TR ($1220/15=$81.33). D. Company A profit maximization Quantity | Total Revenue | Total Cost | 7 | $840 | $300 | Company A reaches its’ greatest profit maximization with a Quantity of 8 because the total revenue is at the greatest distance from total cost. (TFC+TVC=TC); Price x Quantity = TR; Price =$115 Profit is the difference between TR and

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