Topics: Marginal cost, Profit maximization, Cost Pages: 2 (518 words) Published: March 12, 2014
A.Total revenue is the amount of all the sources of the company’s income. The total revenue consists of the total profit over a period of time. The total revenue is calculated by taking the price of the widget and multiplying it by the quantity produced.

For Example, the marginal value would be greater if the company made one more widget and the total revenue increased. There would be no changes in revenue if the company decided to sell another widget and the marginal revenue was zero.

When calculating profit maximization using the total revenue/total cost approach, you must consider the importance that profit equals the difference between total revenue and total cost.

If the cost is fixed, then the cost is constant regardless of the output level. Variable costs are costs that change over the output, such as labor. (price X quantity= total revenue)

The profit maximization is the difference between total revenue and total cost. The total revenue/total cost approach depends on the idea of profit equals total revenue minus total cost. It focuses on maximizing the difference to achieve profit maximization. Profit maximization is greatest when marginal revenue and marginal cost cross. The distance between total cost and total revenue are highest at this point.

B.Marginal revenue is the increase in revenue from a sale of one additional widget. Marginal revenue is calculated by dividing the change in total revenue by the change in output quantity.

1. Marginal revenue in this situation increases when one (1) widget is sold. After the one (1) widget is sold as the quantity increases the marginal revenue decreases by ten (10).

C.Marginal cost is determined by taking the change in total cost and dividing it by the change in quantity.
1. Marginal cost stays constant between widget when the output quantity is one (1) and output quantity is two (2). The marginal cost increases by 10 then stays constant when the output...