A. 1 The first approach is total revenue (TR) to total cost (TC). TR – TC means you take your total revenue and subtract your total cost to get your total profit maximization. 2. The second is the marginal revenue (MR) to marginal cost (MC) approach. MR=MC. Therefore your marginal revenue (MR) is equal to your marginal cost (MC) which will give you your total profit. B. MR=change to TR/change to Q
Marginal revenue is extra revenue that is received each time your business sells 1 additional unit.
1. Each time your quantity goes up your marginal revenue will decrease. C. MC=change in TC/change in Q.
Marginal cost (MC) is the cost for your business to produce 1 more unit. 1. In the given scenario the marginal cost increases every time the units produced increases. D. The profit maximization for Company A occurs at 8 units produced. TR-TC = $540.00 at 8 units.
E. If Company A’s marginal revenue is more than their marginal cost (MR>MC), then Company A should make more units until marginal revenue is equal to marginal cost (MR+MC).
F. If Company A’s marginal cost (MC) ends up being greater than their marginal revenue (MR) then that would cause a loss in revenue therefore they would need to cut back on their units produced until marginal cost is equal to marginal revenue (MC=MR).
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