Marginal Revenue and Profit

?In order for a company to be able to reach its full potential financial management must be in place. This management needs to be aware of at least the basics of financial plans which are revenue, cost and profit. These three things can make or break a company. Each of these things must be understood and considered before plans can be laid to create or better a company. Revenue is the amount a company receives (Marginal Revenue, 2009). If a company is in the business of sales, revenue is the amount of money the company receives per unit sold. Marginal revenue is the amount of money a company receives for the last unit sold.
This is found by dividing the change in revenue by the change in quantity sold. For companies that compete with one another marginal revenue is not very important. This is because in a competitive environment most products are sold at a set price so that marginal revenue is equal to the set sales price of the product. For a monopoly on the other hand, marginal revenue is very important. Monopolies have a decreasing marginal revenue curve (marginal Revenue, 2009); for a monopoly the marginal revenue is less than the sales price. This is because a monopoly must have a lower sales price in order to increase the amount of product sold.
Total cost is the amount of money it costs to operate at a particular rate of production (Baker, 2000). There are two types of cost: variable and fixed. Fixed costs are those that remain the same regardless of production and variable costs are those that change with production. Marginal cost is the addition either to total cost or total variable cost resulting from one more unit of output (McConnall & Brue, 2008). Usually this is found by dividing the change in total cost by the change in quantity. Profit is the positive gain from an investment or business operation after subtracting expenses (Profit, 2009).

Profit maximization is the idea that people will try to create as high a profit as possible given the circumstances. Since marginal revenue is the amount of revenue an additional unit will bring in and marginal cost is the amount the additional unit will cost to produce, then profit maximization is the point where marginal cost and marginal revenue are equal (Profit Maximization, 2009). So as long as marginal cost is lower than marginal revenue there is profit, but if marginal cost ever exceeds marginal revenue the last unit should not be produced. If the marginal revenue is higher than the marginal cost, the company can produce more units.
Business owners and managers need to be able to make a profit. Whenever people think of profit, they are aware that profit is the amount of money left after the expenses are paid and most people know the greater the profit the better off they will be. Most people do not know that profit maximization requires the knowledge of marginal cost and marginal revenue. In order to determine when a company is no longer profiting from production of extra units, one must know that profit maximization is the point where marginal revenue equals marginal cost. Refernces (2009). Marginal revenue: Fundamental finance.
Retrieved July 16, 2009, from fundamentalfinance. com Web site: http://economics. fundamentalfinance. com/micro_revenue. php Baker, S. (2000). Cost concepts. Retrieved July 16, 2009, from Economics interactive tutorial Web site: http://hspm. sph. sc. edu/COURSES/ECON/Cost/Cost. html (2009). Profit. Retrieved July 16, 2009, from investorwords. com Web site: http://www. investorwords. com/3880/profit. html Profit Maximization. Retrieved July 16, 2009, Web site: http://www. econ. ilstu. edu/ntskaggs/eco105/readings/profit-max. htm McConnell, C. , & Brue, S. (2008). Microeconomics 17th ed. New York: McGraw-Hill Irwin.

Don't use plagiarized sources. Get Your Custom Essay on
Marginal Revenue and Profit
Just from $13/Page
Order Essay
Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more
Live Chat+1(978) 822-0999EmailWhatsApp

Order your essay today and save 20% with the discount code LEMONADE