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Words 412

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Total revenue is what a firm profits all together on the sales of a product or service. It is the sum of all the money spent by the consumers on that product or service. Total cost is what it cost the firm to make a product or deliver a service. Total cost includes the purchasing of raw materials, labor, production, transportation, and any other cost incurred by the firm. To gain profit maximization, you have to take total revenue and minus total cost. The point at which the difference is the highest would be the profit maximum.

Marginal revenue is the additional profit or revenue that a firm makes by selling one more product or service. In a monopolistic competitive market, the market determines the price of the products or services being sold. Marginal cost is the cost to a firm to produce one more product. It is calculated by taking the total cost of the last product made and subtracting the total cost of the product before that. In the graph, it costs Company A $30 to make one product and $50 to make two products. The marginal cost is $50 minus $30; which is $20. It goes up $10 for every additional product. To figure out marginal revenue, take the total revenue minus the total cost for each product produced. The difference in profit from one unit to the other is the marginal revenue. Marginal revenue increases from making one product up to eight. When the production of a product reaches seven and eight, the profit is at a maximum and remains constant. The marginal revenue starts to decrease with each additional product made after eight. The profit from making 1 product is the same as making 14 products.

The purpose of a business is to make money and maximize profits. So you need to be able to figure out how to produce the most units that will make you the most profit. If the marginal revenue is…...

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