Egt1 task 1


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Egt1 task 1

  1. 1. EGT1 Task 1 Task 1 EGT1 Anna Kinton Western Governors University Student ID: 000195178 Student Mentor: Pat Hardy
  2. 2. EGT1 Task 1 In this paper I am going to define a few common economic terms and explain theirrelationships to other econmic terms. I will also explain how profit maximizing firms determin theiroptimal level of output and how a profit maximizing firm will react to different levels of marginalrevenue. Marginal revenue is the extra revenue that will be made by a firm when the firm sells oneadditional unit of a product. Total revenue is simply the sum of a firms sales of a specified quantityof a particular product. So, while marginal revenue is telling how much extra money selling eachadditional product will make a firm, total revenue is telling how much the firm will make by sellinga given quantity. Marginal cost is the what it will cost a firm to produce one more unit of product.Total cost is the total economic cost a firm incurs for producing a given quantity of a certainproduct. Profit is simply the a firms total revenue after the firm pays for its operating costs, andprofit maximization is the the course of action that a firm takes to determine how much they willproduce and what they will charge per unit of production in order to provide the firm with thegreatest possible profit in either the long run or the short run time frame of a firm. A profit-maximizing firm determines its optimal leval of out put by finding the point wheremarginal cost is equal to marginal revenue. Meaning that, when the cost of producing an additional,or extra, unit of product is equal to the amount of extra revenue. This point is the peak of the firmsprofit maximixing potential. An additional unit of product after this point will only result in costingthe firm money, rendering marginal revenue as zero or negative. If a profit maximizing firms marginal revenue is greater than marginal cost, the firm willcontinue adding another unit of product to production as long as marginal revenue is greater than orequal to marginal cost. If a profit-maximizing firms marginal revenue is less than marginal cost, thefirm would need to reduce its output to the point of optimal output where marginal revenue is againequal to marginal cost.
  3. 3. EGT1 Task 1 References McConnell, C. R., Brue, S. L., & Flynn, S. M. (2012). Economics: principles, problems, andpolicies. New York: McGraw-Hill.