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Explain the concept of profit maximization.
Introduction:
Business owners, managers, and aspiring entrepreneurs need to know the best form of business organization to select based on various considerations, including taxes, liability, capital contributions, sharing of profits and losses, management and control, and survivorship.
Scenario:
Company A is a producer of widgets in a monopolistically competitive market structure. It is projected that as more widgets are sold Company A must offer a discount on each one to ensure adequate demand. Due to limited supplies and the cost of equipment maintenance the cost will rise as more widgets are produced.
The tables below provide data on the revenue and cost at different output levels for the year.
| Quantity | TR | TC |
|
0 |
$0.00 |
$10.00 |
|
1 |
$150.00 |
$30.00 |
|
2 |
$290.00 |
$50.00 |
|
3 |
$420.00 |
$80.00 |
|
4 |
$540.00 |
$120.00 |
|
5 |
$650.00 |
$170.00 |
|
6 |
$750.00 |
$230.00 |
|
7 |
$840.00 |
$300.00 |
|
8 |
$920.00 |
$380.00 |
|
9 |
$990.00 |
$470.00 |
|
10 |
$1,050.00 |
$570.00 |
|
11 |
$1,100.00 |
$680.00 |
|
12 |
$1,140.00 |
$800.00 |
|
13 |
$1,170.00 |
$930.00 |
|
14 |
$1,190.00 |
$1,070.00 |
|
15 |
$1,200.00 |
$1,220.00 |
Task:
Write an essay (suggested length of 1–3 pages) that explains the relationship between marginal revenue and marginal cost, and the importance of these concepts for profit maximization in which you do the following:
A. Explain profit maximization from the following approaches:
1. Total revenue to total cost
2. Marginal revenue to marginal cost
B. Explain the calculation used to determine marginal revenue.
1. Discuss how marginal revenue increases, decreases, or remains constant in the given scenario.
C. Explain the calculation used to determine marginal cost.
1. Discuss how marginal cost increases, decreases, or remains constant in the given scenario.
D. Explain where profit-maximization occurs for Company A using the chart provided in the given scenario.
E. Explain what action should be taken in terms of adjusting output if it is determined that marginal revenue is greater than marginal cost.
F. Explain what action should be taken in terms of adjusting output if it is determined that marginal cost is greater than marginal revenue.
G. When you use sources, include all in-text citations and references in APA format.
Note: For definitions of terms commonly used in the rubric, see the attached Rubric Terms.
Note: When using sources to support ideas and elements in a paper or project, the submission MUST include APA formatted in-text citations with a corresponding reference list for any direct quotes or paraphrasing. It is not necessary to list sources that were consulted if they have not been quoted or paraphrased in the text of the paper or project.
Note: No more than a combined total of 30% of a submission can be directly quoted or closely paraphrased from sources, even if cited correctly. For tips on using APA style, please refer to the APA Handout web link included in the General Instructions section.
