Relationship Between Marginal Cost and Marginal Revenue

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Relationship between Marginal Cost and Marginal Revenue Elisa Montoya Economics and Global Business Applications EGT1 October 23, 2013 Relationship between Marginal Cost and Marginal Revenue This essay will explain the relationship between “Marginal Cost” and “Marginal Revenue”, as well as the importance that these concepts for the maximization of profits. Profit Maximization Explanation For Profit Maximization there are financial estimations that are utilized to figure out the impacts of generating one or more units in a preparation framework. Profits are maximized when marginal cost and marginal revenue are equal, something that all business’ should strive for. This method gives…show more content…
As the data and graph below shows the as widgets are produced by one more widget, total revenue is increased and marginal revenue is decreased and is characteristic of a monopolistic market. [pic] [pic] Marginal Cost Marginal cost is obtained by producing one more widget and the total cost that result from doing so and the formula for this calculation is MC=ΔTC/ΔQ. As the revenue and cost data shows (following page) that changing each widget by one at a time it is always divided by 1. Marginal cost increases as we increase production by one widget at a time, therefore going from zero to 15 widgets and increasing MC from $10 to $150 and is increasing by $10. [pic] Profit Maximization When a firm determines that the greatest profit return is derived from returns determined by price and output level it will obtain profit maximization. In calculating one would use the formula TR/TC resulting in Profit Maximization’s largest gap between total revenue and total cost or MR/MC stating that marginal revenue is equal to marginal cost also reaching profit maximization. The revenue/cost data and data graph show profit [pic] maximization using company “A”. The data above states that profit maximization is reached a seven and eight widgets and anything produced higher or lower can yield a loss. The data graph gives the same information showing us that the largest

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