Reference no: EM13247256
Competency 309.1.1: Marginal Analysis - The graduate correctly applies marginal analysis.
Objective 309.1.1-05: Describe the relationship between marginal revenue and marginal cost at the point of profit maximization.
Objective 309.1.1-06: 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.
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.
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