Marginal Analysis
Marginal revenue is additional income; an increase in revenue created by an added unit of a company’s product. Marginal revenue is discovered by dividing the change in the total revenue by the change in output quantity. Marginal revenue is calculated by dividing the change in the total revenue by the change in the output quantity and this is how it relates to total revenue. [McConnell and Brue, 2013]. The total revenue will increase as the marginal revenue increases. Total revenue is the combination of all the company’s income on the whole not just sales for a stretch of time. The rate that can be charged harmoniously with selling a quantity of goods is equal to total revenue. To figure out marginal revenue, use the TR=P(Q)*Q formula. Total cost is the combination of all the company’s costs including fixed and variable costs. “When marginal revenue greater than marginal cost company should increase production and if marginal cost greater than marginal revenue company should decrease production. The goal for the company is to allow marginal cost to equal marginal revenue. " [McConnell and Brue, 2013]. Marginal cost is the change in the total cost of production for an additional unit. It is considered a variable cost. This includes any additional costs include labor and materials. A variable cost is an expense that changes in relationship to the activity of the business. The total cost relationship to marginal cost is the variable cost. The variable cost is added to the fixed cost. This is done in order to figure out a company’s total cost.
Profit is the way the original purchase is different than the component cost of delivered goods. It is figured by subtracting the total cost from the total revenue. Total cost and marginal cost, both revenue methods, are means in which profit maximization is obtained. The goal here is to