Marginal Analysis
Marginal Analysis
A. Marginal Revenue:
The increase in revenue generated from the sale of one additional unit of output 1. If there is a positive value associated with the marginal revenue there is an increase in the total revenue. Once the marginal revenue reaches or arrives at 0 then the total revenue is maximized. A decrease or negative in marginal revenue will cause the total revenue to go down.
B. Marginal Cost:
The additional, extra cost involved when increasing the quantity produced. MC = Change in total cost / Change in Quantity
1. The marginal cost is the slope of the total cost and total variable cost curve. If the total cost curve is sloping upward than the marginal cost is rising. If the total cost curve begins to flatten than the marginal cost curve remains positive but is falling.
C. Profit:
The amount earned by a company after all costs of operation and production have been factored and satisfied.
1. Profit maximization occurs when marginal revenue is equal to marginal cost. The firm nets the greatest amount of profit at that unit of production. If they were to produce more than that number of units the profit would decrease. If the firm produced less units than maximum profit would not be realized.
D. Profit Maximization using Marginal Revenue & Marginal Cost Approach
A firm will calculate all total costs, average total costs, average fixed costs, and average variable costs. Once these have been calculated based upon the number of units produced the firm will see where MR=MC and this is the point of profit maximization. Based upon these number of units produced and the revenue generated from that point will be the best situation for the firm.
E. Profit Maximization when Marginal Revenue is greater than total cost:
Firm would continue to produce product due to the super profit being made until marginal revenue and marginal cost become equal. Proper tracking would be the
A. Marginal Revenue:
The increase in revenue generated from the sale of one additional unit of output 1. If there is a positive value associated with the marginal revenue there is an increase in the total revenue. Once the marginal revenue reaches or arrives at 0 then the total revenue is maximized. A decrease or negative in marginal revenue will cause the total revenue to go down.
B. Marginal Cost:
The additional, extra cost involved when increasing the quantity produced. MC = Change in total cost / Change in Quantity
1. The marginal cost is the slope of the total cost and total variable cost curve. If the total cost curve is sloping upward than the marginal cost is rising. If the total cost curve begins to flatten than the marginal cost curve remains positive but is falling.
C. Profit:
The amount earned by a company after all costs of operation and production have been factored and satisfied.
1. Profit maximization occurs when marginal revenue is equal to marginal cost. The firm nets the greatest amount of profit at that unit of production. If they were to produce more than that number of units the profit would decrease. If the firm produced less units than maximum profit would not be realized.
D. Profit Maximization using Marginal Revenue & Marginal Cost Approach
A firm will calculate all total costs, average total costs, average fixed costs, and average variable costs. Once these have been calculated based upon the number of units produced the firm will see where MR=MC and this is the point of profit maximization. Based upon these number of units produced and the revenue generated from that point will be the best situation for the firm.
E. Profit Maximization when Marginal Revenue is greater than total cost:
Firm would continue to produce product due to the super profit being made until marginal revenue and marginal cost become equal. Proper tracking would be the