Egt1 Task 1

Good Essays
Marginal Analysis
Economics & Global Business Applications, EGT 1, Task 1

A. Explanation of profit maximization
The total revenue, TR, is the overall amount of all sources of a business’s income. It consists of total sales or profit, over a period of time. The TR can be calculated by taking the price and multiplying it by the quantity. For example, if a business decides to retail another product and the total revenue does increase, thus the marginal revenue would be greater than zero. However, if the business decides to sell another product and the marginal revenue is zero, then there would not be any changes to the total revenue.
To determine profit maximization, using the Total Revenue to Total Cost approach, consider the importance that profit equals the difference between total revenue and total cost. Fixed cost is constant cost regardless of the output level. Variable cost is costs that change over output such as labor. Price x Q= TR. Total fixed cost + the total variable cost= TC. The difference between the TR and TC is profit maximization. To further explain, total revenue to total cost perspective relies on the idea that profit equals revenue minus cost and focuses on maximizing the difference to achieve profit maximization. The profit-maximizing output is the one at which the difference reaches its maximum.
The profit maximization is greatest when marginal revenue and marginal cost intersect because the distance between the total cost and the total revenue are the greatest at that point.
B. Calculation used to determine Marginal Revenue
The marginal revenue is the change in total revenue resulting from selling one more unit of output. If marginal revenue is greater than marginal cost then total revenue would be increased. If marginal cost is greater than marginal revenue, it would then decrease. Furthermore, if both marginal revenue and marginal cost are equal, it would remain constant. In this given scenario, we can calculate the



References: McConnell, C. (2011). Economics (19th ed). McGraw-Hill Learning Solutions. Retrieved from http://online.vitalsource.com/books/0077771699/id/ch08.

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