Egt1 Task 1 Paper

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EGT1 - Economics Subdomain: 309.1 - Task 1 A. Profit Maximization a1. The total revenue (TR) to total cost (TC) approach relies on the fact that profit equals revenue minus that cost and focuses on maximizing the greatest difference between TR and TC. Total Revenue (TR): Is the income derived from the sales of a given product. (McConnell., 2011) This total does not take include the cost of producing the product. The calculation of the TR is accomplished by multiplying the number of units sold time the sales price. * TR = Sales Price * Quantity Sold Total Cost (TC): The sum of fixed cost and variable cost at each level of output. (McConnell., 2011) * TC = TFC + TVC (Total cost = Total Fixed Cost + Total Variable…show more content…
Profit Maximization is the process that a firm uses to establish where the best output and price levels are, in order to maximize its return. There are two primary methods that can be used to establish profit maximization. One method is the Marginal Revenue minus the Marginal Cost (MR-MC) method. When utilizing this method economists assume that profit would be at its highest when MR and MC are equal, which denotes that for every item made MP=MR-MC. When / if MR is higher than MC then MP would result in a profit for Company A. However, if MC is higher than MR Company A, would experience a loss. Utilizing method the Total Revenue – Total cost method; TR-TC method which depends on P (profit) = Revenue - Cost. When utilizing this method the first step is to determine the results of this equation P=TR-TC. Based on the given scenario for Company A and with utilizing the given data table. When using the MP = MR- MC, approach the maximum profit Equilibrium lies at the output of quantities of eight. When utilizing the P = TC- TR approach based on the given data table the profit maximization occurs at the production output quantity of seven with a profit of…show more content…
In the given scenario; if Company A determined that marginal revenue (MR) is greater than marginal cost (MC) the action that they should take to reach profit maximization is to continue manufacturing additional units of widgets until the marginal revenue is equal to marginal cost. Using the information provided in the data table, when firm has reached the output quantity of seven widgets their marginal revenue is still larger than their marginal cost by twenty dollars. As a result of increasing the quantity of widgets produced to eight the marginal revenue and marginal cost are now equal to zero therefore maximizing Company A’s

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