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 ...view middle of the document...
Once Company A starts producing 10 or more units of product, marginal revenue will then start to decline.
Marginal cost can be defined as “the extra cost of producing one more unit of output,” (McConnel, 2012). Marginal cost occurs when an organizations total cost to produce one unit of output changes. Whether it is a decrease in the cost to produce a unit of product or an increase in the cost to produce a unit of product, this is marginal cost. The formula to calculate Marginal Cost is as follows, MC=change in TC/Change in Q. In the given scenario Company A’s marginal cost increases with the increase of units produced. The optimal units produced are between 8 and 9.
The profit from selling a product or a service is “the surplus remaining after total costs are deducted from the total revenue, and the basis on which tax is computed and dividend is paid,” (Business dictionary, 2012). Profit is what all organizations strive to achieve. If an organization is not making a profit, they cannot continue to operate. The profit amount is determined after all expenses to produce the product have been paid. This includes...