1 / 4

Cost, Revenue, and Profit Maximization

Cost, Revenue, and Profit Maximization. Businesses must analyze costs before making a decision. Cost is divided into several areas: Fixed Cost – Incurred even if plant is idle and output is zero (salaries, interest, rent, tax, etc.).

Download Presentation

Cost, Revenue, and Profit Maximization

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Cost, Revenue, and Profit Maximization Businesses must analyze costs before making a decision. Cost is divided into several areas: Fixed Cost – Incurred even if plant is idle and output is zero (salaries, interest, rent, tax, etc.). Variable Cost – this changes when the rate of operation or output changes (labor & raw materials). Total Cost – Sum of the Fixed and Variable costs. Marginal Costs – extra cost incurred when a business produces one additional unit of a product (per-unit increase in variable cost).

  2. Cost, Revenue, and Profit Maximization Businesses use Total Revenue and Marginal Revenue to find the amount of output that will produce the greatest profits. Total Revenue – number of units sold X average price per unit *Marginal Revenue – extra revenue associated with the production and sale of one additional unit of output. Determined by dividing the change in Total Revenue by the Marginal Product.

  3. Cost, Revenue, and Profit Maximization Marginal Analysis – compares extra benefits to the extra costs(cost/benefit analysis). If the Marginal Cost is less than the Marginal Revenue, the business will continue to hire. Break-Even Point – total output the business needs to sell in order to cover its total costs. Profit-Maximizing Quantity of Output – Marginal Cost and Marginal Revenue are equal.

More Related