Economics for Business: Individual Portfolio – Research Paper Example

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Question A) Calculate average and marginal cost, average and marginal revenue (Fundamentalfinance). Sales Volume Total Costs Total revenues Marginal Cost Avg. Cost Marginal Revenue Avg. Revenue 0 1 0 0 1 0 0 1 13 27 13 13 27 27 2 24 53 11 12 26 26.5 3 33 78 9 11 25 26 4 40 102 7 10 24 25.5 5 50 125 10 10 23 25 6 66 147 16 11 22 24.5 7 84 168 18 12 21 24 8 104 188 20 13 20 23.5 9 126 207 22 14 19 23 10 150 225 24 15 18 22.5 B) In the preceding graph which plots the average costs and revenue with the marginal cost and revenue for each successive unit of output, the point in which profit is maximized is at an output of eight units (Varian, 2003) C) How much profit is being made at this combination of price and output? There are two methods of determining where a company’s profit is maximized: 1) One method is to calculate the maximum total profit by subtracting Total Costs from Total Revenues for each level of unit output in order to determine at what level of production maximum profit occurs. 2) The second method of determining at what unit output the company maximizes its profit by calculating the marginal costs and marginal revenue for each additional unit of output.

The maximum profit level is achieved when marginal costs equal marginal revenue (Cliffnotes, 2011). As shown in the following example- Maximum profit output occurs at an output of eight units, which earns the maximum level of total profit of $84.

References

Blacksacademy.biz (2003). Factor Immobility. <http://www.blacksacademy.biz/ba/civ/XG9hg1anx/5EKqZZpHes.pdf> [Accessed 2 December 2011].

Cliffnotes.com (2011). Profit Maximization. <http://www.cliffsnotes.com/study_guide/Profit-Maximization.topicArticleId-9789,articleId-9769.html> [Accessed 4 December 2011].

Factoidz.com (2011). What Caused the Great Recession of 2008-2009? <http://factoidz.com/what-caused-the-great-recession-of-20082009/> [Accessed 2 December 2011].

Froning, D. (2000). The Benefits of Free Trade: A Guide of Policymakers. < http://www.heritage.org/research/reports/2000/08/the-benefits-of-free-trade-a-guide-for-policymakers> [Accessed 3 December 2011].

Fundamentalfinance.com. Marginal Cost (MC) & Average Total Cost (ATC). <http://economics.fundamentalfinance.com/micro_atc_mc.php> [Accessed 3 December 2011].

Sentance, A. (2010). Andrew Sentence: Prospects for Global Economic Recovery. <http://www.bis.org/review/r100322e.pdf> [Accessed 4 December 2011].

Sparknotes.com (2011). Monopolies and Oligopolies. <http://www.sparknotes.com/economics/micro/monopolies/section1.html> [Accessed 4 December 2011].

Varian, R. (2003). Intermediate Microeconomics: A Modern Approach (6th ed.). New York: W.W. Norton & Company.

Wordpress.com (2011). UK Bank Bail Out = 93.5% of UK National Debt. <http://notnumber.wordpress.com/2011/08/26/uk-bank-bail-out-93-5-of-uk-national-debt/> [Accessed 4 December 2011].

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