EGT1 Task 2: The Elimination Of Marginal Value

879 Words4 Pages
EGT-1 TASK 1 According to McConnell and Brue Marginal revenue constitutes the difference in total revenue incurred by the sale of one additional unit. So marginal revenue is calculated by dividing the change in total revenue by the change in quantity sold, which is calculated as the change in TR/ the difference in Q (McConnell & Brue, 2008). The connection in marginal revenue and total revenue is based entirely on mathematics. The computation total revenue=price x quantity is the formula used to determine total revenue. Marginal cost as stated by McConnell and Brue is said to be the extra cost of producing 1 more unit of product; so the calculation for marginal cost MC is the change in total cost TC divided by the change in total…show more content…
So to be able to have a productive and successful business, business owners may want to look into maximizing their profits by way of the profit maximization concept. Profit maximization is when a company comes to a conclusion on the price and output level that will turn the maximum profit by using this particular process (Wikipedia). Granted there are many different approaches to this problem; however in this essay we will be considering the TR to TC method and the MR MC method. Tiffany C Wright expressed that the total revenue to total cost method is dependent on the fact that profit equals revenue minus cost. Total revenue equals price time’s quantity. It reflects total receipts obtained from selling a certain output or quantity of goods. Total costs is different it’s equal to fixed costs and variable costs. Fixed costs include building and equipment costs, regulatory fees and salaried personnel and remain stable, especially in the short term, but may vary with a longer time horizon. As the time horizon increases, variable costs rely less on existing factors and restrictions and therefore will begin behaving differently which will in turn affect the cost of production (Wright, 2007). The second way a firm that’s into profit maximization can decide its greatest level of output is by way of the marginal revenue -- marginal cost method. This is done by subtracting the marginal cost from the marginal revenue that a product generates. Using marginal cost and marginal revenue as the bases, profit maximization will be obtained at the point when marginal revenue is equal to marginal cost. If the marginal revenue is greater than marginal cost this would be when a profit maximizing firm would need to increase production until marginal revenue is equal to marginal cost. However, if the opposite situation exist were the firm finds that the marginal revenue

More about EGT1 Task 2: The Elimination Of Marginal Value

Open Document