...LINDSEY APPELGET EGT TASK 1 SUBDOMAIN: 309.1 – ECONOMICS Competency 309.1.1: Marginal Analysis - The graduate correctly applies marginal analysis. Objective 309.1.1.05: Describe the relationship between marginal revenue and marginal cost at the point of profit maximization. Objective 309.1.1.06: Explain the concept of profit maximization. Introduction: Business owners, managers, and aspiring entrepreneurs need to know the best form of business organization to select based on various considerations, including taxes, liability, capital contributions, sharing of profits and losses, management and control, and survivorship. Task: Write an essay (suggested length of 1–3 pages) that explains the relationship between marginal revenue and marginal cost, and the importance of these concepts for profit maximization in which you do the following: A. Define marginal revenue. Marginal Revenue is the change in revenue that results from the sale of one additional unit of output. (McConnell & Brue & Flynn 2012) Marginal revenue is calculated by dividing the change in total revenue by the change in output quantity. 1. Explain its relationship with total revenue. Total revenue is all money/income that a business makes over a period of time from the sale of goods or services. It is calculated by multiplying quantity sold by price. If you know marginal revenue you will be able to tell what total revenues will do if business sales change. If marginal revenue is...
Words: 715 - Pages: 3
...Economics and Global Business Applications EGT1 Task 1 July 17, 2014 For a company to determine if it is profitable there are various factors that need to be assessed. An organization must produce a product, tangible or intangible, to produce a profit. The product must be produced at a cost that is low enough so that when sold, the mark up of the item is enough to pay the cost of production and make a profit. To determine profit you would deduct the cost of production from the total revenue made. Once an organization can determine the profit margin, it can plan on future endeavors. Total revenue is defined as “the total number of dollars received by a firm from the sale of a product.” (McConnel, 2012) Total revenue is not the profit that is made from selling a product. Total revenue is the money that was made when the product was sold to a consumer. Once total revenue is obtained, profit is determined by deducting the total cost from the total revenue. The relationship can be described as follows, “total revenue is the change that occurs in marginal revenue when one or more units of goods or services are produced” (McConnel, 2012). A change in quantity, whether this change is negative or positive, is when marginal revenue occurs. “Marginal Revenue is the change in total revenue that results from selling one or more unit of output.” (McConnell, 2012) An organization will make additional revenue by selling additional units of output. Marginal revenue is determined...
Words: 699 - Pages: 3
...EGT 1: Task 2-309.1.2-08 & 09 Elasticity of demand is the relationship between the demands for a product with respect to its price. Generally, when the demand for a product is high, the price of the product decreases. When demand decreases, prices tend to climb. Products that exhibit the characteristics of elasticity of demand are usually cars, appliances and other luxury items. Items such as clothing, medicine and food are considered to be necessities. Essential items usually possess inelasticity of demand. When this occurs prices do not change significantly. “The Cross-price elasticity of demand measures the rate of response of quantity demanded of one good, due to a price change of another good” (Economics.about.com, 2013). When two similar products are present they are considered to be substitutes for each other. For example, say you have Coke and Pepsi. When the price of Coke rises so will the increased demand for Pepsi and other like products. This is considered to be a positive relationship. The relationship is negative when you have two products that complement each other. For example, say the price of a car increases. When price escalates the demand for tires, its complementary product, will decrease. Income elasticity is a way that economists measure the level that people act in response to changes in their income that may effect the consumer purchasing more or less of a product. This form of measurement helps to classify products as inferior...
Words: 950 - Pages: 4
...competitive practices and issue cease and desist orders when appropriate. Celler-Kefauver Act 1950 amended section 7 of the Clayton Act. Section 7 of the Clayton Act had a loophole that allowed firms to acquire physical assets of a company instead of stock of a competing company and still accomplish their purpose. B. 1. Oligopoly – a market structure that has a few firms that dominate the market. Since there are only a few firms in an oligopoly that supply goods, the lack of competition causes high prices. Industrial regulation helps consumers get fair prices regulated by the government. Industrial regulation reduces market power of oligopolies, prevents collusion and increases market competition. The tool used to accomplish these tasks is price regulation. 2. Monopoly – a market structure where one producer controls supply of a product. There is a lack of competition causing greater levels of market power and market share, higher prices, less product innovation and fewer choices for consumers....
Words: 477 - Pages: 2
...A. Explain profit maximization from the following approaches: 1. Total revenue to total cost 2. Marginal revenue to marginal cost Profit maximization is when the largest amount of profit is made based on output levels and prices. In the total revenue to total cost approach, profit is maximized when the total revenue exceeds total cost by the greatest amount. The profit maximization is going to be found between the two break even points. The break even points are where the total revenue and total cost are equal to each other, but that only includes the normal profit. Economic profit is found between the break even points and that is also where the greatest distance between total revenue and total cost is found. In the marginal revenue to marginal cost approach, profit is maximized when the two equal each other. This approach shows profit will be made as long as marginal revenue is more than marginal cost, and the profit is maximized once marginal revenue equals marginal cost. When marginal cost exceeds marginal revenue, profit is no longer being made. Profit maximization will only occur if the price of the product is equal to or greater than the average variable cost. If the marginal revenue does not exceed or at least equal the average variable cost, it would make the most sense to shut down production completely. B. Explain the calculation used to determine marginal revenue. 1. Discuss how marginal revenue increases, decreases, or remains constant in the given scenario. Marginal...
Words: 961 - Pages: 4
...EGT1: Economics and Global Business Applications Marginal Analysis By Christine Poole April 12, 2013 Abstract This essay will define marginal revenue, marginal cost, and profit, and it will explain the relationship each has with total revenue, total cost, and it will explain the concept of profit maximization. Marginal Revenue 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, C. R., & Brue, S. L., Flynn, S. (2012)). Total revenue is the total receipts of a firm from the sales of any given quantity of a product. It can be calculated as the selling price of the firm’s product times the number of items sold. If the total revenue is zero when zero units are sold, then the first unit of output sold increases total revenue by the selling amount, which is also the marginal revenue amount. The demand for the product will determine whether the marginal revenue is higher, lower or the same as the revenue from the previous unit produced. “While marginal revenue can remain constant over a certain level of output, it follows the law of diminishing returns and will eventually slow down, as the output level increases.” www.investopedia.com/terms/m/marginal-revenue-mr.asp. When marginal revenue equals marginal cost competitive firms will stop producing output. Marginal Cost Marginal cost...
Words: 653 - Pages: 3
...A. Summarize the four major pieces of legislation collectively known as the Antitrust Laws. Antitrust laws were put in place to make business’s compete fairly. These fall into four main areas: agreements between competitors, contractual arrangements between sellers and buyers, the pursuit or maintenance of monopoly power, and mergers. The four major pieces of legislation collectively known as the Antitrust Laws are; the Sherman Antitrust Act, the Clayton Antitrust Act, the Federal Trade Commission Act and the Celler-Kefauver Act of 1950. The Sherman Antitrust Act has two categories that are targeted; ○ to restrain or prevent trade among states or foreign nations ○ prohibit against monopolies. ○ Only the United States Department of Justice has the power to prosecute individuals who are suspected of violating this act, (unless the individual state has the power granted by its own antitrust legislation.) The Federal Trade Commission Act ○ created the Federal Trade Commission ○ gave the Commission the power to enforce United States Antitrust legislation. The Clayton Antitrust Act ○ passed to prohibit mergers and acquisitions when those would substantially lessen competition. ○ enabled state attorney generals the ability to prosecute and enforce federal antitrust laws. ○ outlawed price discrimination, regulated stock acquisitions, and tying contracts ○ The Robinson - Pitman Act amended the Clayton Antitrust Act by banning...
Words: 1136 - Pages: 5
...Course ID: EGT 1 Task 2 Task: Section A When discussing elasticity of demand we discover three major terms. When company A reduces the given unit price and the consumer reacts by purchasing larger quantities, which in turn creates an increased profit margin, we term this elastic meaning the increased demand percentage change in quantity is greater than the change in price percentage. Given the same scenario and consumer purchases increase, but not enough to cause a gain in revenue, instead it creates a loss in revenue, we call this inelastic demand. Unit elasticity can occur from the same scenario when the increase consumption causes revenue to remain the same with no increase or decrease. = The coefficient is what economist use to measure elasticity or inelasticity. Section B Cross elasticity of demand measures the sensitivity of consumer purchases. It shows the effect of price changes to consumer purchases. Example product X has price percentage change, which cause a percentage change in purchase quantity of product Y. = When we talk about cross price elasticity as it pertains to substitute goods, we can use the example of Coke and Pepsi. If the price of Coke is raised 15%, the consumption of Pepsi will go up in reaction. Pepsi would be considered a good substitute. This would be considered a positive cost elasticity for Pepsi because of the increase in sales; meaning that the sales of one product moves is the same direction as the change in price of another. In short...
Words: 913 - Pages: 4
...EGT 1 Task 1 A. 1. The profit maximization approach used when total revenue and total cost are compared is the largest positive gap or profit gained between total revenue less total cost. In the table provided the largest profit or profit maximization would be $540. When you produce 8 items profit is at its highest point. To calculate total revenue you take the price times the quantity and to calculate total cost you take the sum of variable and fixed costs. 2. The profit maximization approach used when marginal revenue and marginal cost are compared is to take the marginal revenue less the marginal cost. In this process you look at how each additional unit affects total revenue and total cost. Marginal revenue is equal to the change of total revenue divided by change in quantity and Marginal cost is equal to the change in total cost divided by change in quantity. Once marginal cost exceeds marginal revenue it is not effective to produce the product and there is no longer a profit maximization. The profit maximization approach when using marginal revenue and marginal cost is to make as many products as you can until marginal cost equals marginal revenue. B. 1. Marginal revenue it the change in total revenue divided by the change in quantity. To get total revenue so that you can calculate marginal revenue you need to take the price times quantity less total cost. Marginal revenue becomes elastic and stays constant when there is perfect competition. But marginal revenue usually...
Words: 883 - Pages: 4
...The four major pieces of legislation collectively known as the Antitrust Laws are the Sherman Act (1890), Clayton Act (1914), Federal Trade Commission Act (1914) and the Cellar-Kefauver Act (1950). The Sherman Act was the first Anti-trust law put in place. It was designed to break up existing monopolies that were already in place. The act stated that it was illegal to contract inhibit trade. It also made it illegal to try and monopolize industries or to have a monopoly of an existing industry. While the intentions were admirable this act was extremely vague and had very little clarity. Both the legal system and businesses were unclear as to what was legal and what was illegal. In an effort to provide more clarity and definition the Clayton Act was passed in 1914. This act was far more defined the Sherman Act and provided more structure and definition regarding legal versus illegal behavior. This Act specifically outlawed the practice of price fixing and the use of tying contracts. The Clayton Act also prohibited a company from buying out a competitor in order to reduce or prevent competition. The last major component of this legislation was the provision that stated that it was illegal for to be “interlocking directorates”. For example the CEO of a company cannot sit on the board of Directors of its competitor. This legislation made this conflict of interest illegal. Also in 1914 the Federal Trade Commission Act was passed. This legislation the government agency known as the Federal...
Words: 881 - Pages: 4
...approach for given products in a given market. Objective 309.2.4-06: Explain how cross-cultural communication issues affect marketing strategies. Objective 309.2.4-07: Evaluate the impact of specified cross-cultural ethical differences on marketing strategies. Introduction: Businesses large and small now compete in a truly global economy. To be successful in another country, it is essential to understand and appreciate the cultural differences that exist. Business practices and ideas that work well here in the United States may not necessarily be expected to do so in other cultural environments. If you were considering an expansion of your current business into an Asian country, what cross cultural challenges might you encounter? Task: Write an essay (suggested length 3–5 pages) in which you do the following: A. Discuss three major cross-cultural differences that would need to be taken into consideration if your company were to expand into this market based on your selected country. I have chosen to take my business into the Asian country of the Philippines. There will be many cross-cultural differences that will need to be considered prior to the expansion from the United States. Three of these major cross-cultural differences I would like to emphasize on are first, the language barrier; second, I will be covering legal barriers; and third, I will discuss the labor barriers. Language Barrier I chose this as a major barrier in a cross-culteral transition of...
Words: 3666 - Pages: 15
...Company A has made a decision to expand their company in Japan. Our company is going to face some failures in this market located in Japan. When looking at this we do not want to fail on our first attempt. Of course, this is a risk that will have to be taken. If there is a failure on this first attempt, we will incur a great expense, and not mention the difficulty to attempt a second attempt in that particular market. I feel that the most important problem that we are going to face will be the language barrier. The official language in Japan is Japanese. If the local business chooses to conduct a business in Japan, a fluent interpreter will need to be present at all times. This is another expense for the company. English is a language that is taught in Japan, but it is not the primary language that is spoken there. The Japanese have a tendency to be passive resistance. There are a couple of things that this culture takes very seriously. One would be body language. Silence is something that is more integrated in their culture and customs. Helping to avoid a misunderstanding between you and the Japanese conversationalist you will need to use the Japanese body language along with verbal communication. Eye contact here in the United States is something that we use, that is considered very important. In Japan this is to be considered very rude and also aggressive. I feel that to get buy in Japan we need to make sure that we have just a basic knowledge...
Words: 360 - Pages: 2
...Economics and Global Business Applications EGT1 Task 2 July 17, 2014 Elasticity of demand can be described as the percentage of change that occurs when the demand for a product or service changes because of a change in the price. An organization can reduce the price of a product or service, which in turn, will increase the demand for this product or service. This will increase the revenue for the organization. There are three ways to measure the elasticity demand in a product. The first is inelastic demand, the second is unit elastic demand, and the third is relatively elastic demand. Inelastic demand is defined as, “a change in price will result in a reduction of quantity demanded, which will then lead to a revenue decrease” (McConnell, Brue, Flynn, 2012, pg. 76). The following shows elastic and inelastic demand results. When Jones Hardware sells 100 screws for $0.50 each, the revenue is $50. The manager runs a sale on screws for $0.25 each and they sell 300 screws the revenue from that sale is $75, bringing in additional revenue of $25. This is elastic demand. If Jones Hardware had only sold screws at $0.25 but had made less revenue than it would be inelastic. “A percentage change in price and the resulting percentage change in quantity demanded are the same” (McConnell, Brue, Flynn, 2012, pg. 76) is unit elasticity of demand. When Jones Hardware discounts the screws by 5% and there is an increase in demand of 5%, unit elasticity occurs. “The response of...
Words: 955 - Pages: 4
...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...
Words: 1139 - Pages: 5
...A. The profit maximization approach using total revenue to total cost is determined by using the formula Profit = TR-TC. When total revenue exceeds total cost you will have a profit but when total cost exceeds total revenue you have a loss. In the graph below you can see at 8 units is where the maximum profit would be. After 8 units are produce you see the effect of diminishing returns as your profit for each unit produced gets smaller and smaller until it hits 15 units and you are now taking a loss for each unit produced. Profit maximization is determined by the greatest gap between TR & TC. Quantity TR TC Profit 0 $0.00 $10.00 ($10.00) 1 $150.00 $30.00 $120.00 2 $290.00 $50.00 $240.00 3 $420.00 $80.00 $340.00 4 $540.00 $120.00 $420.00 5 $650.00 $170.00 $480.00 6 $750.00 $230.00 $520.00 7 $840.00 $300.00 $540.00 8 $920.00 $380.00 $540.00 9 $990.00 $470.00 $520.00 10 $1,050.00 $570.00 $480.00 11 $1,100.00 $680.00 $420.00 12 $1,140.00 $800.00 $340.00 13 $1,170.00 $930.00 $240.00 14 $1,190.00 $1,070.00 $120.00 15 $1,200.00 $1,220.00 ($20.00) Quantity MR MC 0 $0.00 $0.00 1 $150.00 $20.00 2 $140.00 $20.00 3 $130.00 $30.00 4 $120.00 $40.00 5 $110.00 $50.00 6 $100.00 $60.00 7 $90.00 $70.00 8 $80.00 $80.00 9 $70.00 $90.00 10 $60.00 $100.00 11 $50.00 $110.00 12 $40.00 $120.00 13 $30.00 $130.00 14 $20.00 $140.00 15 $10.00 $150.00 When using the marginal cost to marginal...
Words: 854 - Pages: 4
