Egt 1 Task 1

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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 decreases once you begin to increase production after your first item. Marginal revenue increase once you begin production from zero to one then declines. Below is the marginal revenue for the table provided. If you notice for ever increase in quantity there is a decrease in marginal revenue
Quantity TR 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0 150 290 420 540 650 750 840 920 990 1050 1100 1140…...

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