Relationship Between Marginal Cost And Marginal Revenue

1095 words - 5 pages

Relationship between Marginal Cost and Marginal Revenue

Elisa Montoya

Economics and Global Business Applications


October 23, 2013

Relationship between Marginal Cost and Marginal Revenue

This essay will explain the relationship between “Marginal Cost” and “Marginal Revenue”, as well as the importance that these concepts for the maximization of profits.
Profit Maximization Explanation
For Profit Maximization there are financial estimations that are utilized to figure out the impacts of generating one or more units in a preparation framework. Profits are maximized when marginal cost and marginal revenue are equal, something that all ...view middle of the document...

At times marginal revenue may remain the same for a period of time over a level of output. When this happens it is follow what is called the law of diminishing returns, stating that as the output level increases the level of output will eventually slow down.
Marginal cost results from the change in total cost that comes from producing one additional widget. Marginal cost is used by firms to determine the point and organization will reach the economies of scale to analyze marginal cost. Such calculations have a formula to determine marginal revenue to marginal cost by dividing total revenue (change in total) by quantity sold.
The actual formula is written: Marginal Revenue =ΔTR/ΔQ. The Greek letter delta “Δ”, represents the change in value in the case. An example of this is; if the revenue of a firm changes by $12 after the sale of four additional widgets, the marginal revenue by 3 or 12/3.
An Explanation of Marginal Revenue Calculation
Marginal Revenue is sought when the firm producing widgets is thinking of a change in output; the firm is looking to see how its total revenue is going to change. This is done when the firm produces another unit of output or our case “another widget”, therefore changing the total revenue due to this production.
From the selling of one more widget total revenue is changed and marginal revenue is obtained the formula is MR=ΔTR/ΔQ. Below are two graphs; revenue and cost produced at different levels of output and Marginal increase or decrease graph. The revenue and cost graph is also used to calculate “marginal revenue as you will see in the fourth column. The first column is the quantity column and shows us zero to 15 widgets of productions. The second column is the revenue generated for each widget; the third column is the total cost, and the fourth column is the marginal revenue column.
To obtain the totals in the marginal revenue column we will need the figures for quantity and total revenue. First of all we will take total revenue when one widget is produced and find how much it changed from zero revenue and this will give us marginal revenue. As the data and graph below shows the as widgets are produced by one more widget, total revenue is increased and marginal revenue is decreased and is characteristic of a monopolistic market.
[pic] ...

Other assignments on Relationship Between Marginal Cost And Marginal Revenue

Relationship Between The Usage Of Cell Phones And Brain Tumrs

1550 words - 7 pages USAGE OF CELLPHONES AND BRAIN TUMORS Living in the information age technology is around people twenty-four hours a day seven days a week. One piece of technology most people have with them throughout the day is a cell phone. This study will investigate the relationship between the usage of cell phones and the increased risk of brain tumors. Numerous research studies have been done to analyze how the usage of cell phones correlates with

A Study Of The Relationship Between Corporate Governance Structures And The Extent Of Voluntary Disclosure

7994 words - 32 pages Journal of International Accounting, Auditing & Taxation 10 (2001) 139 –156 A study of the relationship between corporate governance structures and the extent of voluntary disclosure Simon S.M. Ho*, Kar Shun Wong School of Accountancy, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong Abstract The primary objective of this study is to test a theoretical framework relating four major corporate governance attributes with the

The Relationship Between Study Skills And Academic Performance Of University Students

1791 words - 8 pages . MOTIVATION FOR THIS PAPER This paper attempts to add more clarity as to the relationship between gender and academic performance. We posit the notion that it is really learning skills and strategies that drive academic performance differences. Our inquiry into this issue distills to three research questions, in the following logical order:1) Is there a statistically significant relationship between academic performance and learning skills and

The Relationship Between The Corporeal Body And The Spirit In The Context Of The Novels “Perfume: The Story Of A Murderer” And “Hunger”

1617 words - 7 pages | World Literature Assignment 1 | The Relationship Between the Corporeal Body and the Spirit In the Context of the Novels “Perfume: The Story Of A Murderer” and “Hunger” | | | | | Subject: English A1 Higher Level Session: May 2010 Word Count: 1500 The constitution of the human being is often classified into two parts: the body and the

Chapter 20 Flash Cards

2250 words - 9 pages marginal cost curve will be downward-sloping. At the point of diminishing marginal returns, the marginal physical product declines and the marginal cost increases, so the marginal cost curve will be upward-sloping. | 20-7. The most desirable rate of output is the one that maximizes total profit—the difference between total revenue and total costs. | 20-10. At the point of diminishing marginal returns, the marginal physical product declines and

Explicit Costs And Implicit Costs Concepts

1552 words - 7 pages ) and the total cost of producing that output is the greatest. The same idea may be expressed using marginal rather than total values: the firm should produce that level of output at which its marginal revenue is equal to its marginal cost. In other word, deciding whether to increase output by one more unit or not, the firm should produce that additional unit if, by doing so, it can increase its revenues by more than its costs. If it would cost


4124 words - 17 pages , the marginal benefit exceeds the price charged by the firms. (B) In equilibrium, the marginal benefit exceeds the marginal cost of production. (C) In equilibrium, the marginal revenue of the firm is not equal to its marginal cost. (D) In long-run equilibrium, the firm is earning economic profits. (E) Firms exhibit significant market power and therefore the number of firms in the industry is strictly

Distinction Between Market And Market Structure And Its Implications For Managerial Decision Making

1002 words - 5 pages profit maximising output for a firm is where marginal revenue equals marginal cost, and since in perfect competition, the marginal or additional revenue that can be earned is the ruling market price, a manager operating in a perfectly competitive market has to look at the cost and revenue sides and stop production at the level where the firm’s marginal cost equates the ruling price determined by the market. If a manager desires to have some


414 words - 2 pages In a short-run production function, total product, average product, and marginal product changes as total product and labor increases. The total product increases rapidly up to 6.666 units of labor. This means that marginal product is increasing over the range of production when one additional unit of labor is added. While total product is increasing between 6.666 units of labor and 14 units of labor marginal product is decreasing. When a total

Nhl Profit Maximization Case Study

1855 words - 8 pages economics perspective else we would be obtaining the same only in an accounting perspective. Marginal Cost-Marginal Revenue Method An alternative perspective relies on the relationship that, for each unit sold, marginal profit (Mπ) equals marginal revenue (MR) minus marginal cost (MC). Then, if marginal revenue is greater than marginal cost at some level of output, marginal profit is positive and thus a greater quantity should be produced


697 words - 3 pages patent life Price after patent expires Marginal cost Marginal revenue 0 Monopoly quantity Competitive quantity Demand Quantity T HE Wh mo dru mo abo mak pat firm it m the pric DEMAND, ELASTICITY AND TOTAL REVENUE DEMAND AND MARGINAL REVENUE Demand: P=10-Q MR: P= 10-2Q When  marginal  revenue  is  … then  demand  is  … positive, price elastic. negative, price

Similar Documents

Relationship Between Responsibility And College Success

352 words - 2 pages Personal Responsibilities and College Success Personal Responsibilities and College Success Jowanda Johnson Gen/200 February 27, 2012 Michael Baker Personal Responsibilities and College Success As to start this paper, there are some responsibilities that will be share and what it means to people. It will also talk about the relationship between personal responsibility and college success, and last but not least, the main reason of

Relationship Between Job Satisfaction And Motivation

710 words - 3 pages 1. There is a reciprocal relationship between an employee motivation and their work performance. Employee motivation is described as the level of energy, commitment and creativity that a company’s workers bring to their job while motivation is the initiation, direction, intensity and persistence of human behavior. A widely used trend in organizations is forced ranking procedure; this is used by managers to make a distinction between the levels

Relationship Between The Savings Rate And Economic Growth Of China

1982 words - 8 pages Relationship between the Savings Rate and Economic Growth of China By: Muhammad Saddam Hossain Institute of Business Administration, Jahangirnagar University Submitted to: Dr. Shuddhasattwa Rafiq Associate Professor, Institute of Business Administration, Jahangirnagar University Submitted by: Muhammad Saddam Hossain Batch: 21st Class ID: 1565 Date of Submission: June 11, 2013 Institute of Business Administration

Assess Sociological Explanations Of The Relationship Between Globalisation And Religion

1090 words - 5 pages Assess sociological explanations of the relationship between globalisation and religion Globalisation is rapidly increasing as the world is becoming more interconnected and barriers are disappearing as a result of the creation of global markets and media and culture due to instantaneous communication systems and deregulation of trade and this is also causing a social change to some religions. In India globalisation has been a good thing as it