...Marginal Costing Student’s Name: Marginal Costing Course code and name Instructor’s name Learning Institution City, State Date of submission Marginal Costing PRINCIPLES Economists incline to think about costs in terms of static, timeless models with continuous cost functions. The real context is, however, one of businesses and systems which already exist and have accrued a collection of assets of various vintages whose accounting cost replicates past prices, past situations and arbitrary conventions about devaluation (Collis, 2012). In the applied economics context, such as utility regulation, the textbook theory is of no help Marginal cost Marginal cost is a close estimate of how economic value would change if return changed (Barrios, 2010). Marginal means an initially determined, however in practice, in light of indivisibility in plant sizes, we are often intrigued by the for every unit change in value that will be brought on by a significant change in a future yield, not of a one unit change. Moreover, venture and limit are not continually variable; they are uneven. Marginal costs include determining, since they are the contrasts between what was and what would have been with diverse yields. The result is that, when the idea of marginal cost totally concurs on a basic level, its estimation includes significantly more than computations established upon a set of standards. All gages are liable to mistake, including minimal cost gages. MARGINAL COSTS...
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...Relationship between Marginal Cost and Marginal Revenue Elisa Montoya Economics and Global Business Applications EGT1 October 23, 2013 Relationship between Marginal Cost and Marginal Revenue This essay will explain the relationship between “Marginal Cost” and “Marginal Revenue”, as well as the importance that these concepts for the maximization of profits. Profit Maximization Explanation For Profit Maximization there are financial estimations that are utilized to figure out the impacts of generating one or more units in a preparation framework. Profits are maximized when marginal cost and marginal revenue are equal, something that all business’ should strive for. This method gives the company the most out of their costs of production and sales generation. Total Revenue to Total Cost According to a particular sequence for maximizing total profit, you need to augment the variance between total revenue and total cost. Total revenue comes from the sale of the firm’s output (widgets in this case); this is the amount that will come from the selling of widgets multiplied by the quantity of widgets sold at that same price. A firm needs two parts when calculating economic profit; total revenue and total cost. Total costs are the sum of implicit and explicit costs. Implicit costs are those costs that are derived from what economists describe as opportunity costs. For example something that is tangible is given...
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...Accounting Marginal and absorption costing General: Product cost = Unit cost Page | 1 Production cost CGS Inventory Marginal Cost 1. Unit cost Direct material Direct Labour Direct expenses Variable production overheads 2. CGS = Units sold X unit cost 3. Inventory = units X unit cost (Production units - Sales units) 4. Contribution per unit = Selling price per unit – unit cost – variable non production cost Absorption costing 1. Unit cost Unit cost as per marginal costing Fixed production overheads (OAR per unit) 5. Total contribution = units sold X contribution per unit 5. Total Gross profit = units sold X Gross profit per unit Or Total sales – CGS 6. Profit = total GP ± over/ (under absorption) – Non Production costs 7. Over/ (under absorption) = Absorbed FOH – Actual FOH 6. Profit = Total contribution – Fixed costs 7. Fixed costs = Actual Production FOH + Non production 8. Non production costs Admin + selling + distribution etc. 2. CGS = Units sold X unit cost 3. Inventory = units X unit cost (Production units - Sales units) 4. Gross profit per unit = Selling price per unit – unit cost DIFFERENCE IN PROFIT • • Difference in profit is due to difference in unit cost. You might have noticed that difference is OAR/ unit. In marginal costing fixed production overheads are treated as period cost. Hence not included in inventory valuation and made expense in a period. (Same like non production cost in an income...
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...In economics the marginal cost of an item is the cost of providing one additional unit of output, whether that output is a product or service. For example, suppose that a hospital currently provides 40,000 patient days of care. Its marginal cost, based on inpatient day as the unit of output, is the cost of providing the 40,001st day of care. In this situation, it is likely that fixed costs, both direct and overhead, have already been covered by reimbursements associated with the existing patient base (the 40,000 patient days), so the marginal cost that must be covered consists solely of the variable costs associated with an additional one-day stay. In most situations, no additional labor costs would be involved; additional personnel would not be hired nor overtime required. The marginal cost, therefore, consists of variable costs such as laundry, food and expendable supplies, and nay additional utility services consumed during that day. Many proponents of government programs such as Medicare and Medicaid argue that payments to providers should be made on the basis of marginal rather than full costs. By implication, nongovernmental payers would cover all base costs. However, what would happen if all payers for a particular provider set reimbursement rates based on marginal costs? If such a situation occurred, the organization would not recover its total costs and would ultimately fail. For prices to be equitable, all payers should pay their fair share in covering...
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...principle of efficient road user charging the user must be charged for all the additional costs, because they imposed by their used of the road system. Marginal external cost is an additional cost while marginal social cost are cost its borne directly by the user. This principle that all costs are valued at the compensation that needed to those willing to do. They have two main constraints in the development of road user charging the technical and economic. Charging has two form the Fuel duty and Vehicle excise duty. Efficient prices (MSC- MARGINAL SOCIAL COST CONCEPT). Have two concepts: SHORT RUN which pricing translates into, in terms of road pricing, is a need to measure three components of cost. The first is the cost imposed...
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...THE ZERO MARGINAL COST SOCIETY "To live well, we must work well" - folk wisdom. The capitalist model is practically not working. The collapse does not occur in one day, but it happens on a daily basis with local and some periodically stepped collapse. The standard of living of citizens' continuously and steadily getting worse, this is the social significance of the global crisis. Why the number of dissatisfied with the life is growing? The authorities are accusing the people: “you are guilty and don’t work well”. People are accusing authorities: “all of you are stealing our national wealth”. Both sides are right. Why do people and authorities -"do not want" to change and what will stimulate them to start “wanting"? We are living in a dangerous time, when: • Outdated socio-economic norms and government institutions are losing legitimacy (dying), informal (including illegal ones) rules are accepted; • Authorities are stealing and squandering, lives with outdated economic dogmas, protects outdated socio-economic rules and loses trust "the people" (for example, the latest scandal with excessive tax benefits in Luxembourg for international corporations) • Implemented ideology of distracting entertainment and consumption; • Dissatisfaction with the level of people’s life and authority actions are turning people into apathy, "universal" values are washed out, the quality of labor is falling; • Strengthens sprouts (beginnings)...
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...1) For the typical firm operating in the short run, the relationship between its marginal cost and average total cost curves is such that A. if average total cost is less than marginal cost, marginal cost must be rising B. if marginal cost is greater than average total cost, then average total cost is falling C. if average total cost is greater than marginal cost, marginal cost must be falling D. if marginal cost equals average total cost, average total cost must be falling Why? For a typical firm operating in short run, the relation between its Marginal cost and Average total cost is a mathematical relationship. If Average cost is less that Marginal cost, marginal cost must be rising. If average cost is less than marginal cost, marginal cost will lie above average cost and if the output increases, the unit cost will also increase. If the average cost is more than the marginal cost, the marginal cost will lie below the average cost and if the output is increased, the unit cost will decrease. Therefore, the relationship between the MC and AC is such that if ATC is less than MC, MC will rise. 2) The presence of economies and diseconomies of scale explain A. how much output the firm should produce B. the shape of the firm's long-run average cost curve C. the shape of the firm's short-run marginal cost curve D. the relationship between fixed and variable inputs Explain...
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...EGT1 Task 1 Marginal Analysis Student Name Western Governors University Student ID: The primary focus of this paper is to demonstrate the concepts of marginal revenue and marginal cost, how the two are related to each other and how they are used by a company in profit maximization. By factoring, analyzing and comparing the various data on revenue and cost, a company can use a marginal analysis to determine the best direction to maximize profits. A marginal analysis is the “comparisons of marginal benefits and marginal costs, usually for decision making” (McConnell, 2011, p. 6). A. There are two methods to describe profit maximization. Further details of both methods and how each are used to determine profit maximization are as followed: 1. One method of understanding profit maximization is by using the relationship of total revenue and total cost. Total revenue is the total income that a company receives from a product or service. The price multiplied by the quantity of the product or service equates to the total revenue. Total cost is the total expense or cost to a company to produce a product or provide a service. Profit is determined by subtracting the total cost from the total revenue. Initially, as production or quantity increases, profit increases as well. There is a point, however, where the profit will maximize and then begin to diminish as the unit quantity increases. This point is where the greatest profit is realized in relation to the total revenue...
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...the total cost revenue total cost approach to determine the profit maximizing output you will start by recognizing that profit is equal to total revenue minus total cost. The profit –maximizing output is the output at which profit reaches it maximum. In the TR TC approach the profit maximization is the quanity of output that achieves the greatest difference between TR and TC. The price of the good is set because all of the competing companies are price takers. Marginal profit is equal to marginal revenue minus marginal cost. In the marginal revenue to marginal cost approach if the marginal revenue is greater than the marginal cost then the marginal profit is positive and if the marginal revenue is less than the marginal cost then the marginal profit is negative. The profit increases when the marginal revenue is almost equal to the marginal cost. Again the profit decreases when the marginal revenue is less than the marginal cost. Again profit does not increase or decrease if the marginal revenue is equal to the marginal cost. When the production level equates the marginal revenue and the marginal cost in that case the point of profit maximization is reached. Firms compare the amount that each additional unit of output would add to the total revenue or the total cost. Marginal cost is the change in the total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level...
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...Task 1. When owning or managing a business it’s important to keep track of the marginal revenue. The most important factors in showing you if your business is a success are cost, revenue and profit. Revenue can high for a company, but if the costs are high as well a profit won’t show and they will most likely not be able to make it. It’s important for businesses to keep track of their profits and cost’s. The way businesses figure their profit maximization is by determining the price and the number of widgets made to get the highest profit they can for their business. There are two ways of figuring your highest profits, one of which is by Total Revenue/Total Cost method and the other way is Marginal Revenue/ Marginal Cost method. A1: Looking at Marginal Revenue shows how much profit a business has by selling each extra widget. Marginal Revenue is the change in total revenue coming with a change in quantity of widgets sold. Marginal Revenue is the difference in total revenue minus the difference in quantity. A2: In the Marginal Revenue/Marginal Cost method, for each unit sold the Marginal profit is equal to the Marginal Revenue less the Marginal Cost. Profit maximization is when Marginal Revenue is equal to the Marginal Cost. To show this, a business compares the amounts that each additional unit sold would add to the total revenue and the total cost. B: For Company A to find their Marginal Revenue, they would take the difference in total revenue after a widget is produced...
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...www.cambridge.org/micro4mbas McKENZIE: MICROECONOMICS FOR MBAS PPC CMYBLK ................................................................................................................ 10 Monopoly power and firm pricing decisions If monopoly persists, monopoly will always sit at the helm of government … its bigness is an unwholesome inflation created by privileges and exemptions which it ought not to enjoy. If there are men in this country big enough to own the government of the United States, they are going to own it. Woodrow Wilson That competition is a virtue, at least as far as enterprises are concerned, has been a basic article of faith in the American Tradition, and a vigorous antitrust policy has long been regarded as both beneficial and necessary, not only to extend competitive forces into new regions but also to preserve them where they may be flourishing at the moment. G. Warren Nutter and Henry Alder Einhorn t the bottom of almost all arguments against the free market is a deep-seated concern about the distorting (some would say corrupting) influence of monopolies. People who are suspicious of the free market fear that too many producers are unchecked by the forces of competition, but instead hold considerable monopoly power or control over market outcomes. Unless the government intervenes, these firms are likely to exploit their power for their own selfish benefit. This theme has been fundamental to the writings of economist John Kenneth Galbraith: The...
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...ROCHESTER INSTITUE OF TECHNOLOGY SAUNDERS COLLEGE OF BUSINESS SPRING QUARTER 2012-2013 ECONOMIC FOR MANAGERS BTM Game Analysis Report Firm 1 Binal Patel Kun Liao Ling Xiao Lei Wella Mohibi Yi xin Huang 1 1) Table of Contents 2) Introduction and Summary Our performance in BTM game Market structure analysis Strategies of our firm 3) Analysis of our problems in the BTM game MC and MR Plant size Price elasticity Training and process improvement advertising, product development and E-commerce 4) How to improve our performance in the future Macroeconomic analysis Competitor analysis Payoff matrix Kinked demand 5) Conclusion 2 1. Introduction and Summary Our performance in BTM game Our firm is a very good example of how to learn beat the market game because at beginning, none of our team members had any experience with making business decisions hence, we had poor performance at the beginning. But with hard work and learning how to apply economic theories to the game, we did much better in the last 3 quarters and enhanced our rank. Our final rank in the game is 5th . We ranked 6th in quarter 1 and quarter 2 and then because the poor performance, our rank went down to 7th in quarter 3. However, in quarter 6, we did very well and enhanced the rank from 7th to 6th. Then we kept doing well in quarter 7, which made us achieve the 5th position. Based on Figure 1 we can see that, during 8 quarters, we performed poorest in quarter...
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...level of demand required by consumers or because an entrepreneur simply wants to enter into the selling of a product produced within the market. This means that the arrangements of any one supplier or purchaser in the market have an insignificant impact on the market price of the product of that, which is current. Consumers in the competitive market are said to be price takers because they must accept the current price that has been determined by the market for that particular good. This means that there are many firms offering essentially identical products, and each firm has very little influence over the price received from a consumer for this product. Profit is determined by the ratio that profit equals total revenue minus the total cost of the good, and when any one business is small, when it is...
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...each buyer or seller is a price taker, (ii) all sellers supply the same, identical product. This is the model of supply and demand. If a seller could influence the price, it would not be acting according to a supply curve. In the long run, we also require that (iii) firms can freely enter or exit the market. Revenue of a Competitive Firm For a competitive firm, the price it receives does not depend on the quantity it chooses to sell. Marginal revenue equals the price of its output. For example, if the price is $6, then the total revenue of selling 10 units is $60 and the total revenue of selling 11 units is $66. Marginal revenue, ªTR/ªQ = (66-60)/(11-10) = $6. Profit Maximization Obviously, both revenue and cost considerations determine the profit maximizing output choice. But which of the cost functions is relevant? The profit maximizing output choice involves “thinking at the margin.” We can also compare marginal revenue (which always equals the price, $6) and marginal cost. • At outputs below 4, marginal cost is less than...
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...Chapter 5 & 6 Homework Economics for Management A firm in a perfectly competitive market invents a new method of production that lowers its marginal costs. What happens to its output? What happens to the price it charges? If the firm invents a new method of production that lowers its marginal costs then in turn it will be able to produce or output more. Nothing will occur to the price in which it charges as we know in a perfectly competitive market all of the firms are price takers however, since it is lowering its marginal costs it will wind up gaining a larger profit. (a) The firm has an employee who threatens to tell all other firms in the industry about how to implement this new technique. Will it be possible to bribe the employee not to do this? Explain why or why not. Ethically I would say no the firm cannot bribe the employee to not share the information however, if they have a code of conduct they can threaten the employee with termination. However, it is possible for the employer to bribe the employee with money as long as it is less of their economic revenue. The employee may still tell other firms in a limited quantity as by doing this it could add potential customers for this firm. (b) Why should this employee probably choose to tell only some of the other firms rather than all of them? If the employee only tells some of the other firms rather than all of them then at least only those that she tells can benefit from the economic profit. ...
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