Marginal Cost And Profit Maximization

Submitted By Bojangles008
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Marginal Revenue, Marginal Cost and Profit-maximization
A.1 Total revenue subtracted from total cost yields a total profit. There are many ways profit maximization can be calculated as well as multiple variables which could effect the results. This method seems to be a general calculation used to estimate a potential profit. The yield could also be a loss. This general concept could be a quick way for a potential start up business or current business to calculate a profit, or sometimes loss. At some point a company whom is profitable will reach a high point where their profit is maximized by their output and at some point they will start to decline. Reasons for decline could be product returns, increase in hours and wages for employees etc. Finding the right balance of output, costs and revenue will yield a profit-maximization point for any company.

A.2 Marginal revenue to marginal cost can provide all types of companies with a general review of their income to cost equation. If the result is in the green the company should continue to produce. If the results are in the red the company would want to consider shutting down. Therefore any company would want their marginal revenue to be higher than their marginal cost. As the book describes “MR=MC”. As long as the marginal revenue is is equal to or greater than the marginal cost than the company should continue operating and producing. If it is less than it may want to consider closing.

B.1 An increase in product/production yielding either a profit or loss equals the total marginal revenue . When production is at zero the company will still incur costs for being open. The example shows that at rate of production of 0 the company looses $10. Using MR=MC , not profit maximization, the company is producing a positive marginal revenue with quantities 1-14. While the profit amount varies as the quantity increase they showing an increase in marginal revenue up to the point of production at quantity 15. If the company reaches a production quantity of 15 they will take a loss in marginal revue and their marginal cost will surpass causing a loss in profit. At that point the company may want to consider reducing production or find other ways to cut costs.

C.1 When production increases, the cost of the output is calculated as the marginal cost resulting in a loss or gain. In this scenario there is a gain in marginal cost as production increases. Marginal Costs does not remain constant, it increases greatly