Running head: MAXIMIZING PROFIT WITH MARGINAL ANALYSIS 1

Maximizing Profit with Marginal Analysis
Timothy L. Gould
Western Governors University

MAXIMIZING PROFIT WITH MARGINAL ANALYSIS 2

Abstract
In today’s market it is important to not only stay competitive but be able to grow with the market. In order to accomplish this, a company must pay close attention to its total revenue earned versus its total costs incurred. It must maximize its earnings while assuring that the reward is outweighing the cost of pursuing that reward.

MAXIMIZING PROFIT WITH MARGINAL ANALYSIS 3

Total revenue to total cost
Of course we want to make money. We have also heard the term “it takes money to make money”. This is very true in any institution that manufactures goods that it then resells for a profit. We do not want to spend five dollars of “total cost” to make only 4 dollars of ”total revenue”. Therefore we must evaluate our total costs of producing an item and assure that we make a profit when we sell the item to a customer. We also want to assure we are maximizing our profit by getting the most we can in our market. As a company that produces widgets we will always have certain costs to do business. Electricity, labor, materials and even rent are always present in our expenses. Some costs are going to be present regardless of how many items we make. These costs are considered fixed expenses. Rent, electricity and 5 workers at 8 hours a day could be considered fixed costs and we will incur them regardless of production and sales output. Other expenses that can change with rate of production are materials we use to make the widgets and even the number of employees required to make the widgets. These costs are considered variable. Profit (P) maximization is determined when the