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Revenues and Costs - Coursework Example

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This coursework "Revenues and Costs" discusses marginal revenue as the increase in revenue with a unitary increase in sales of a product. Marginal revenue refers to the amount by which the revenue increases when one more unit of a product is sold by a firm…

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Subject: Business
Type: Coursework
Level: Undergraduate
Pages: 2 (500 words)
Downloads: 3
Author: hahndelphia

Extract of sample "Revenues and Costs"

If the marginal revenue is a negative number, it means that selling an additional unit reduces the total revenue, if the marginal revenue is positive, selling an additional unit increases total revenue, and if marginal revenue is zero, selling an additional unit has no effect on total revenue.

Marginal cost refers to the additional cost that a firm incurs when it produces an additional unit of a product (Laidler and Estrin, 2004). Marginal cost refers to the increase in cost when an additional unit of a product is produced by the firm.
1. Marginal cost is also the slope of the total cost curve (Laidler and Estrin, 2004). This means that the marginal cost defines the behavior of the total costs incurred by the firm. Since the marginal cost is the slope of the total cost curve, a negative marginal cost means that an increase in unitary production reduces costs while a positive marginal cost means that an increase in unitary production increases total costs.
Profit refers to the difference between the total costs incurred and the total revenue earned by a firm from operations (Laidler and Estrin, 2004). The profit earned by a firm is positive if the total revenues are more than the total operating costs incurred, and the incomes are negative if the total costs are more than total revenues.
1. Profit maximization in a firm is the process by which the firm decides the total output or unit sales that provide the highest profit possible (Laidler and Estrin, 2004). One of the main concepts of profit maximization is that total profit equals total revenues less total costs, and the firm tries to maximize this equation.
The marginal cost and marginal revenue functions are used by a firm to determine the optimal level of output. From the definition of marginal profits, the profit is maximized when marginal costs equal marginal revenues, therefore, the firm finds the optimal level of output where marginal costs equal marginal revenues (Chiang and Wainwright, 2005).
Profit maximization can also be determined if marginal costs are not equal to marginal revenues. For example, when marginal revenues are bigger than marginal costs, the firm can maximize revenues by increasing production, which in turn increases the revenues more than the increase in costs (Chiang and Wainwright, 2005). This means that revenues will increase at a higher rate than costs, so the firm will increase profits.
When the marginal costs are higher than marginal revenues, the firm can maximize profits by reducing the level of production (Chiang and Wainwright, 2005). When the production is reduced, it means that the revenues will reduce at a lower rate than costs, so profits are maximized.

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