Cost and Revenue Simulation Eco 561
Cost and Revenue Curves Simulation
Having different business objectives is one way of showing the differences in output and its way to use total revenues and total cost curves. The shape of the total cost will depend on what happens to marginal cost. The profit maximizing outputs occurs when at the greatest vertical distance between the TR and TC curves. However, revenue maximization occurs at a higher output level. Any corporation is an organization with several groups like employees, managers, shareholders and customers. The dominant group will determine in a company the moment in time of whatever they can give a greater emphasis to their own objectives within corporations where there is a clear separation between ownership and control , the managers within the business may use their given powers in deciding on price and output in different segments of the market over which they have some control to meet .
Economic Profit In a purely competitive market, companies do not make the same economic profit. Even if they all face the same price for the goods or services they sell. There are so many variables that a company would consider in order to be competitive with the rest of the companies selling the same goods or services. Economic profit is equal to total revenue less economic costs. “Economic costs are the sum of explicit and implicit costs and include a normal profit to the entrepreneur” (McConnell & Brue, 2005, p. 394). Total profit is the product of profit per unit and the quantity. To maximize profit, quantity is chosen at the point where marginal cost (MR) is equal to marginal revenue (MR) which is where the two graphs intersect. This is the ideal situation to a profit seeking company. Since price is greater than the Average Total Cost (ATC), for each unit sold the profit per unit is simply the value by which the price exceeds the ATC.
Scenario
Based on the scenario, three states were compared at the same levels. The quantity
Having different business objectives is one way of showing the differences in output and its way to use total revenues and total cost curves. The shape of the total cost will depend on what happens to marginal cost. The profit maximizing outputs occurs when at the greatest vertical distance between the TR and TC curves. However, revenue maximization occurs at a higher output level. Any corporation is an organization with several groups like employees, managers, shareholders and customers. The dominant group will determine in a company the moment in time of whatever they can give a greater emphasis to their own objectives within corporations where there is a clear separation between ownership and control , the managers within the business may use their given powers in deciding on price and output in different segments of the market over which they have some control to meet .
Economic Profit In a purely competitive market, companies do not make the same economic profit. Even if they all face the same price for the goods or services they sell. There are so many variables that a company would consider in order to be competitive with the rest of the companies selling the same goods or services. Economic profit is equal to total revenue less economic costs. “Economic costs are the sum of explicit and implicit costs and include a normal profit to the entrepreneur” (McConnell & Brue, 2005, p. 394). Total profit is the product of profit per unit and the quantity. To maximize profit, quantity is chosen at the point where marginal cost (MR) is equal to marginal revenue (MR) which is where the two graphs intersect. This is the ideal situation to a profit seeking company. Since price is greater than the Average Total Cost (ATC), for each unit sold the profit per unit is simply the value by which the price exceeds the ATC.
Scenario
Based on the scenario, three states were compared at the same levels. The quantity
References: McConnell, C.R. & Brue, S.L.. (2005). Economics: Principals, problems, and policies. New York: McGraw Hill/Irwin.