Egt1 Task 309.1.1-05 06

Good Essays
A: Marginal revenue is the change made in total revenue a company makes caused by an additional item being produced. This is calculated by figuring the difference between the revenue produced both before and after a single unit increase in the production rate. If the price of a product is constant, the marginal revenue and price are the same. Sometimes an additional item will only sell if the price goes down and that leads to the consideration of marginal cost or the cost of producing one more item. If marginal cost exceeds marginal revenue, further production is not recommended since it would result in a loss. If marginal revenue exceeds marginal cost, then the production of an additional unit would be advised since it would result in an increase in profit.
The marginal revenue received by a firm is the change in total revenue divided by the change in quantity, often expressed as this simple equation: marginal revenue | = | change in total revenuechange quantity | [ (Marginal Revenue) ]

B: Marginal cost is the variation in the total cost of production as a result of the production of one more or one less unit. Marginal cost is important in figuring out whether or not to vary the production rate. Typically, marginal cost decreases as the output increases due to factors such as the cost of bulk rate materials, the efficient use of the existing equipment and labor specializations of the employees. A sale at a price higher than the average marginal cost will result in the company making more profit even though the price doesn’t cover the average total unit cost. Marginal cost can be seen as the lowest amount at which a sale can be made without subtracting from the profits of a company. Marginal Cost = Total Cost divided by Quantity or (Marginal Cost)

C: Profit is the return on investment after the cost of production and all other business charges. For example, if a company spends $80,000 in the production of a product and the total sales



Cited: Marginal Cost. (n.d.). Retrieved 12 14, 2011, from Wikipedia: http://en.wikipedia.org/wiki/Marginal_cost Marginal Revenue. (n.d.). Retrieved 12 14, 2011, from Wikipedia: http://en.wikipedia.org/wiki/Marginal_revenue Marginal Revenue. (n.d.). Retrieved 12 15, 2011, from AmosWeb Encyclonomic: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=marginal+revenue Profit Maximization. (n.d.). Retrieved December 12, 2011, from Wikipedia: http://en.wikipedia.org/wiki/Profit_maximization

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