Marginal Revenue : Marginal Cost

1405 Words Nov 18th, 2015 6 Pages
Marginal Revenue = Marginal Cost
Before we go about using diagrams to explain we must first understand the two abbreviations above. MR means “(Marginal Revenue) is the extra total revenue gained by selling one more unit, per time period” and MC means “(Marginal Cost) this is the extra cost of producing one more per time period” stated in Sloman, Hinde and Garratt (2013, pp.134 and 150). Now that we understand what MR and MC means we move onto profit maximization. It is the main goal of all commercial firms to make profits in addition to that they would want to find out at which point total profit is maximized. The formula to calculate profit is; Total revenue - Total Cost (TR - TC) below is a diagram illustrating this
Total Costs and Revenue TC

Profit TR

0. Output. Q1 Q2 Q3

Firms must stay within Q1, Q2 and Q3 to make profits, from the time a firm passes the point where TC and TR intersect each other they start making a loss which is not their aim. Where TC and TR are furthest apart or (Q2) is where the firm can maximize their profits or where profit maximization point is located. Profits ensure the economic viability of the business which is of interest to the owner. Profits can be…
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