Economics and Global Business - 782 Words

Economics Global Business (EGT1) A. Define marginal revenue. Marginal revenue refers to the surplus revenue generated through increasing the sale of products by 1 unit. It is also known as the unit revenue generated by the last item of the firm (Perloff, 2008). 1. Explain its relationship with total revenue. Total revenue is the difference in incremental change of the output produced. Selling more units increases the total revenue and results in zero marginal revenue. When the marginal revenue is below zero, then an extra unit will be sold from the revenue. When the marginal revenue is zero, then the total revenue will not change even when another unit is sold. This association occurs because marginal revenue is used to measure how the total revenue curve slopes (Pindyck Rubinfeld, 2001). B. Define marginal cost. Marginal cost is the total cost of an additional input required in the production of that output. In formal terms, marginal cost is derived from the total costs of production with regards to the output level. 1. Explain its relationship with the total cost. Total cost and marginal costs are related in terms of the production costs in service prodders and manufacturing firms. Marginal variation and total costs are used in calculating the total cost: total cost constitutes marginal costs (Samuelson Marks, 2003). C. Define profit. 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