Marginal revenue is the revenue generated by selling more products at a slightly lower price, selling more products thus increasing your businesses total revenue. A good example of this would be Little Creasers Pizza; the franchises set the prices of their pizzas much lower than their competitors and sell a lot more pizza at a smaller margin, but sell many more pizzas than their competitors to make a good profit.
Marginal cost is the fluctuating cost of producing a particular product, so it may cost $1.00 to produce a single product, but as you produce more quantity the cost to produce goes down, say it only cost $.25 per unit when producing 1000 units. With most products there is what I like to call a sweet spot in the marginal cost that is at some given quantity the marginal cost will no longer go down with more units produced, but begin to rise slightly. This may be due to the availability of your materials, the distance you have to ship them and so on. Marginal cost will fluctuate, as previously stated, but fixed cost should stay the same for a given amount of time say one year. Fixed cost would be your businesses overhead like pay roll, utility cost, building cost and so on. As your marginal cost fluctuates it also caused your total cost to fluctuate, to figure your total cost you add marginal cost and fixed cost, so if your marginal cost increase so does your total cost.
Profit is total revenue minus total cost, or nothing more than the money left over after all of the business expenses are paid. Profit Maximization is when a business figures out the perfect balance between total cost, product price, and units produced to reach optimal profits.
Explain profit-maximizing using Marginal Revenue and Marginal Cost A profit Maximizing Business will take into consideration the extra cost (margin) of producing every additional individual product and decide when the greatest...
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