Total revenue is the price of an object, sometimes known as a widget multiplied by the total number of widgets sold. A widget is anything that can be sold, it could be a service or a product. Total costs is the sum of all the expenses incurred while producing a certain number of widgets. Total costs is essentially all the costs involved from conception to the purchasing of Company A’s widget. Profit in general is the sum of the total revenue and total costs combined. Profit maximization occurs wherever the sum of total revenue minus total costs is the greatest. In the case of Company A, this occurs when the 8th widget is sold.
Marginal revenue is the amount of change in total revenue that occurs from producing more units of output. Marginal cost is the amount of extra cost to produce those additional units. If marginal revenue is greater than marginal cost, it generally makes sense to produce those additional units in order to maximize your profits. If marginal cost is greater than marginal revenue, it does not make sense to produce those additional units as you will take a loss in profits. Profit maximization occurs when marginal revenue equals marginal costs. In this case, the company achieves profit maximization at the 8th level of output.
Marginal Revenue is found by dividing the change in total revenue for producing one more unit of output by the change in quantity for producing that one more unit of output. In the example given, marginal revenue decreases steadily at a rate of $10 per unit of output.
Marginal cost is calculated by finding the change in total cost and dividing that by the change in total units of output.
Marginal cost is the amount of extra cost to produce additional units in a marginal revenue to marginal cost strategy. In the given scenario marginal cost stays constant when producing the first two units of output at
