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EGT1 TASK 1

According to McConnell and Brue, “marginal revenue is the

change in total revenue that results from the sale of 1 additional unit

of a firm’s product; equal to the change in total revenue divided by the

change in the quantity of the product sold !McConnell " Brue, #$$%,

pg& '(1)*& +he relationship beteen total revenue and marginal

revenue is purely mathematical& +he formula for total revenue is total

revenue - price . quantity&

McConnell and Brue also state that, “marginal cost is the e/tra

cost of producing 1 more unit of output; equal to the change in total

cost divided by the change in output !McConnell " Brue, #$$%, pg& '(

1)*& +he marginal cost is directly related to total cost because

marginal cost is the change in the total cost of a single unit that can be

produced& 0ince total cost is the sum of fi/ cost and variable cost, the

marginal cost directly affects the variable cost of the product hich in

turn changes the total economic cost of production for a product&

rofit is the total amount of money received by a business minus

the total cost it ta2es to run that business& 3 learned this during my

brief stint as the sole oner of an unsuccessful +ravel Agency& 3 also

learned that, if a business fails to turn a profit, then the business ill

go ban2rupt and the doors ill be closed forever& 3n order to remain in

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business and be successful a business may see2 to ma/imi4e their

profits by using the profit ma/imi4ation concept& rofit ma/imi4ation

is something that businesses use to decide a specific price and a

specific output level for a product to generate the most profit

!5i2ipedia*& A profit ma/imi4ing firm can determine its optimal level of 

output by subtracting the marginal cost from the marginal revenue

that a product generates& 6sing marginal cost and marginal revenue as

criteria, the firm ill reach the profit ma/imi4ation point hen

marginal revenue is equal to marginal cost& 3f a profit ma/imi4ing firm

find that the marginal revenue is greater than marginal cost the firm

ould need to increase production until marginal revenue is equal to

marginal cost& 7oever, if the firm finds that the marginal revenue is

less, then their marginal cost, then the firm ill need to reduce

production of the product until M8 is equal to MC&

3t is very important for a business to 2no and understand the

concepts of marginal revenue, marginal cost, and profit ma/imi4ation

so that the business can ta2e the necessary steps to ad9ust their

business strategy accordingly so that it can gro into a productive,

profit earning business& 7ad 3 2non the difference beteen these

concepts and recogni4ed their importance 3 may still be in business

today&

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Works Cited

McConnell, Campbell 8& " Brue, 0tanley :& Economics: Principles,

Problems, and Policies. 7 th ed & Mc'ra(7ill, e 1%>1$ from 5i2ipedia,

http?>>en&i2ipedia&org>i2i>rofit@ma/imi4ationMarginal@cost(

marginal@revenue@method

http://en.wikipedia.org/wiki/Profit_maximization#Marginal_cost-marginal_revenue_methodhttp://en.wikipedia.org/wiki/Profit_maximization#Marginal_cost-marginal_revenue_methodhttp://en.wikipedia.org/wiki/Profit_maximization#Marginal_cost-marginal_revenue_methodhttp://en.wikipedia.org/wiki/Profit_maximization#Marginal_cost-marginal_revenue_method