Marginal Analysis and Profit Maximization - Essay Example

If the marginal revenue is known, then the total revenue can be worked out for a specific change in sales.
B. Marginal cost is the change in total cost that comes from producing one more item (“Investopedia,” 2011). The reason why organizations need to find marginal cost is to determine when economies of scale can be achieved.
1. Total cost is the cost of producing all the units of production. It is important to know and understand the total cost because it will determine whether or not it is worth it to produce one more unit. The key is to find the optimal point and then not produce more than the marginal cost allows.

C. Profit is the total revenue made in a certain period divided by the total expenses or costs of that same period. It is important to have as much profit as possible because it determines the financial health of a business.
1. Profit maximization is achieved at the point where marginal revenue equals marginal cost. This is the optimal point of production because any change, whether an increase or decrease, would result in less profit for a firm, and thus not achieving profit maximization.

D. Profit maximization is the output and price of a certain product that achieves the greatest amount of profit for a firm. This can be found by determining looking at a graph that contains marginal revenue and marginal cost as its axes. The point where these two lines intersect is where profit maximization can be attained.
E. If marginal revenue happens to be greater than marginal cost, then a profit-maximizing firm must increase production until the marginal cost and marginal revenue are the same. This is because if more products are produced, then less marginal revenue can be gained, thus decreasing marginal revenue to a point where it is equal to marginal cost.
F. On the other hand, if marginal revenue happens to be less than marginal cost, then a firm must decrease production until marginal revenue and marginal cost are equal. This is because if fewer products are produced, then extra marginal revenue can be gained, thus bringing marginal revenue equal to marginal cost. Read More