Search results
Results from the WOW.Com Content Network
The total cost, total revenue, and fixed cost curves can each be constructed with simple formula. For example, the total revenue curve is simply the product of selling price times quantity for each output quantity. The data used in these formula come either from accounting records or from various estimation techniques such as regression analysis.
Price and total revenue have a negative relationship when demand is elastic (price elasticity > 1), which means that increases in price will lead to decreases in total revenue. Price changes will not affect total revenue when the demand is unit elastic (price elasticity = 1). Maximum total revenue is achieved where the elasticity of demand is 1.
Profit maximization using the total revenue and total cost curves of a perfect competitor. To obtain the profit maximizing output quantity, we start by recognizing that profit is equal to total revenue minus total cost (). Given a table of costs and revenues at each quantity, we can either compute equations or plot the data directly on a graph.
Netting out fixed costs, a firm then faces the requirement that (total revenue equals or exceeds variable costs), in order to continue operating. Thus, a firm will find it profitable in the short run to operate so long as the market price equals or exceeds average variable cost ( p ≥ AVC ). [ 3 ]
To verify a unit margin ($): Selling price per unit = Unit margin + Cost per Unit; To verify a margin (%): Cost as % of sales = 100% − Margin % "When considering multiple products with different revenues and costs, we can calculate overall margin (%) on either of two bases: Total revenue and total costs for all products, or the dollar ...
[1] [3] [8] The marginal revenue (the increase in total revenue) is the price the firm gets on the additional unit sold, less the revenue lost by reducing the price on all other units that were sold prior to the decrease in price. Marginal revenue is the concept of a firm sacrificing the opportunity to sell the current output at a certain price ...
In economics, average cost (AC) or unit cost is equal to total cost (TC) divided by the number of units of a good produced (the output Q): A C = T C Q . {\displaystyle AC={\frac {TC}{Q}}.} Average cost is an important factor in determining how businesses will choose to price their products.
[1] [2] The marginal revenue is solely determined by the demand for the product within the industry and is the change in revenue that will occur by lowering the price just enough to ensure a single additional unit is sold. [1] [2] The marginal revenue is positive, but it is lower than its associated price because lowering the price will ...