How to find marginal revenue. Monopoly equilibrium Marginal profitability of a resource

For any price reduction, an area similar to the area ABC in Fig. 2, equals Q 1 (Dр). This is the income lost when a unit of goods is not sold at a higher price. Square DEFG equals P 2 (DQ). This is the increase in income from the sale of additional units of a good minus the income that was sacrificed by giving up the opportunity to sell previous units of the good at higher prices. For very small changes in price, changes in total revenue can therefore be written as

where Dр is negative and DQ is positive. Dividing equation (2) by DQ, we get:

(3)

where Dр/DQ is the slope of the demand curve. Since the demand curve for a monopolist's product is downward sloping, marginal revenue must be less than price.

The relationship between marginal revenue and the slope of the demand curve can be easily converted into a relationship that relates marginal revenue to the price elasticity of demand. The price elasticity of demand at any point on the demand curve is

Substituting this into the marginal revenue equation, we get:

Hence,

(4)

Equation (4) confirms that marginal revenue is less than price. This is true because E D is negative for a downward sloping demand curve for the monopolist's output. Equation (4) shows that, in general, the marginal revenue of any output depends on the price of the good and the elasticity of demand with respect to price. This equation can also be used to show how total income depends on market sales. Let's assume that e D = -1. This means unit elasticity of demand. Substituting e D = -1 into equation (4) gives zero marginal revenue. There is no change in total income in response to a change in price when the price elasticity of demand is -1. Likewise, when demand is elastic, the equation shows that marginal revenue is positive. This is so because the value of e D would be less than -1 and greater than minus infinity when demand is elastic. Finally, when demand is inelastic, marginal revenue is negative. Table 1.2.2 summarizes the relationships between marginal revenue, price elasticity of demand, and total revenue.

Select correct option answer.

1.Marginal costs are...

1. maximum production costs

2. average cost of producing a product

3. costs associated with producing an additional unit of product

4. minimum costs for product release

2. The cost of producing a unit of output is ...

1.total costs

2. average costs

3. average income

4. total variable costs

3.Which of the listed types of costs are absent in the long run...

1. fixed costs

2. variable costs

3. total costs

4. distribution costs

4. K variable costs include costs associated...

1. with an increase in total costs

2. with a change in the volume of products produced

3. only with internal costs

4. with an increase in fixed capital

Economic profit is less than accounting profit

by the amount...

1. external costs

2. internal costs

3. fixed costs

4. variable costs

6. Variable costs include...

1. depreciation

3. interest on loan

4. salary

7. Normal profit, as a reward for entrepreneurial talent, is included in ...

1. economic profit

2. internal costs

3. external costs

4. rent payments

8. The company’s purchase of raw materials from suppliers includes ...

1. to external costs

2. to internal costs

3. to fixed costs

4. to distribution costs

9. Accounting profit is equal to the difference...

1. between gross income and internal costs

3. between external costs and normal profit

A typical example variable costs(costs) for the company

serve...

1. raw material costs

2. management personnel costs

3. expenses for salaries of support staff

4. fee for a business license.

11. If the long-term average costs (costs) of producing a unit of output decrease as production volume increases:

1. there are diseconomies of scale

2. there is a positive effect of scale

3. there are constant economies of scale

4. There is not enough data.

12. Suppose that an entrepreneur, having his own premises and funds, organized a repair workshop household appliances. After working for several months, he found that his accounting profit was 357 monetary units, and normal - 425 (for the same period). In this case, the economic decision

entrepreneur...

1. effective

2. ineffective.

13. Total production costs are...

1. costs associated with the use of all resources and services to produce products

2. explicit (external) costs

3. implicit (internal) costs, including normal profit

4. producer costs associated with the purchase of durable consumer goods.

14. External costs are...

1. expenses associated with the acquisition of resources and services for the production of products

3. expenses for the purchase of raw materials and materials in order to replenish production inventories

4. revenue from sales of manufactured products.

15. Internal costs include...

1. expenses for the purchase of raw materials and supplies for production

2. costs of resources owned by the enterprise

3. expenses associated with the acquisition of a plot of land by an enterprise

4. rent for the equipment used.

16. Economic profit is equal to the difference...

1. between gross income and external costs

2. between external and internal costs

3. between gross income and total costs

4. between accounting and normal profit.

17. Accounting profit is equal to the difference...

1. between gross income and internal costs;

2. between total revenue and depreciation

3. external costs and normal profit

4. between gross income and external costs.

Marginal revenue is equal to the price of the good for the producer acting

in conditions …

1. oligopolies

2. perfect competition

3. monopolistic competition

4. pure monopoly

19.Fixed costs include all of the following costs, except...

1. depreciation

3. percent

4. wages;

5. administrative and management expenses.

20. Variable costs include all of the following costs, except...

1. wages

2. costs of raw materials and supplies

3. depreciation

4. electricity fees

21. The cost of producing a unit of output is …

1. total costs

2. average costs

3. average income

4. full variable costs.

22.The increase in product caused by attracting an additional unit of resource is called...

1. marginal costs

2. marginal income

3. marginal product

4. marginal utility.

23. Under the law of diminishing returns (returns), production costs for each subsequent unit of production ...

1. decrease

2. increase

3. remains unchanged

4. decrease if average fixed costs decrease.

24. The difference between revenue and resource costs is...

1. balance sheet profit

2. accounting profit

3. normal profit

4. economic profit.

The monetary value of the activity of an economic entity is income. With the growth of this indicator appear: prospect further development firms, expansion of production and increase in output of goods/services. To maximize profits and determine the optimal volume of output, management uses limit analysis. Since profit does not always have a positive trend with increasing output of goods/services, therefore, a profitable state of affairs in the firm can be achieved when marginal revenue does not exceed marginal cost.

Profit

All funds that are received into a business account during a specific period of time before taxes are paid are called income. That is, when selling fifty units of goods at a price of 15 rubles, a business entity will receive 750 rubles. However, in order to offer its products on the market, the enterprise purchased some production factors and spent labor resources. Therefore the end result entrepreneurial activity is considered an indicator of profit. It is equal to the difference between total revenue and total costs.

From this elementary mathematical formula it follows that maximum profit values can be achieved by increasing income and reducing expenses. If the situation is reversed, then the entrepreneur suffers losses.

Types of income

To determine profit, the concept of “total income” was used, which was compared with the same type of costs. If you remember what costs there are and take into account the fact of comparability of the two indicators, then it is not difficult to guess that according to the type of expenses of the company, there are similar forms of income.

Total revenue (TR) is calculated as the product of the price of the good and the volume of units sold. Used to determine total profit.

Marginal income is the additional amount of money to total income received from the sale of one additional unit of good. It is designated in world practice as MR.

Average Revenue (AR) shows the amount Money, which the company receives from the sale of one unit of production. In conditions of perfect competition, when the price of a product remains unchanged despite fluctuations in sales volumes, the average income indicator is equal to the price of this good.

Examples of determining miscellaneous income

It is known that the company sells bicycles for 50 thousand rubles. 30 pieces are produced per month. wheeled Vehicle.

Total revenue is 50x30=1500 thousand rubles.

Average income is determined from the ratio of total revenue to the volume of products produced, therefore, with a constant price for bicycles, AR = 50 thousand rubles.

The example lacks information about the different costs of manufactured products. In this case, the value of marginal revenue is identical to average revenue and, accordingly, the price of one bicycle. That is, if the enterprise decided to increase the production of wheeled vehicles to 31, with the cost of the added benefit remaining constant, then MR = 50 thousand rubles.

But in practice, no industry has the characteristics of perfect competition. This model of a market economy is ideal and serves as a tool in economic analysis.

Therefore, expansion of production does not always affect profit growth. This is due to different dynamics of costs and the fact that an increase in product output entails a decrease in the price of its sale. Supply increases, demand decreases, and as a result, the price also decreases.

For example, increasing the production of bicycles from 30 pcs. up to 31 pcs. per month resulted in a reduction in the price of goods from 50 thousand rubles. up to 48 thousand rubles Then the marginal income of the company was -12 thousand rubles:

TR1=50*30=1500 thousand rubles;

TR2=48*31=1488 thousand rubles;

TR2-TR1=1488-1500= - 12 thousand rubles.

Since the increase in income turned out to be negative, therefore, there will be no increase in profit and it is better for the company to leave the production of bicycles at the level of 30 pieces per month.

Average and marginal costs

To get maximum benefit from economic activity in management they use the approach of determining the optimal volume of output based on a comparison of two indicators. These are marginal revenue and marginal cost.

It is known that as production volumes increase, electricity costs increase, wages and raw materials. They depend on the quantity of the good produced and are called variable costs. At the beginning of production, they are significant, and as the output of goods increases, their level decreases, due to the effect of economies of scale. The sum of fixed and variable expenses characterizes the total cost indicator. Average costs help determine the amount of funds invested in the production of a unit of good.

Marginal costs allow you to see how much money a firm will need to spend to produce an additional unit of a good/service. They show the ratio of the increase in total economic spending to the difference in production volumes. MS = TS2-TS1/Volume2-Volume1.

Comparison of marginal and average costs is necessary to adjust output volumes. If the feasibility of increasing production is calculated, at which marginal investment exceeds average costs, then economists give a positive response to the planned actions of management.

Golden Rule

How can you determine the maximum profit margin? It turns out that it is enough to compare marginal revenue with marginal costs. Each unit of good produced increases total revenue by the amount of marginal revenue and total costs by the amount of marginal cost. As long as the marginal income exceeds similar costs, then the sale of an additionally produced unit of production will bring benefit and profit to the business entity. But as soon as the law of diminishing returns begins to operate and marginal spending exceeds marginal income, then a decision is made to stop production at a volume at which the condition MC=MR is met.

Such equality is the golden rule for determining the optimal volume of output, but it has one condition: the price of the good must exceed the minimum value of average variable expenditure. If in short term the condition is satisfied under which the marginal revenue is equal to the marginal cost and the price of the product exceeds the average total cost, then the case of profit maximization occurs.

An example of determining the optimal output volume

As an analytical calculation of the optimal volume, fictitious data was taken and presented in the table.

Volume, units	Price (P), rub.	Revenue (TR), rub.	Costs (TC), rub.	Profit (TR-TC), rub.	Marginal income, rub.	Marginal costs, rub.
10	125	1250	1800	-550
20	115	2300	2000	300	105	20
30	112	3360	2500	860	106	50
40	105	4200	3000	1200	84	50
50	96	4800	4000	800	60	100

As can be seen from the table data, the enterprise has a model imperfect competition when, as supply increases, the price of a product decreases rather than remaining constant. Income is calculated as the product of volume and cost of the good. The total costs were known initially and, after calculating income, they helped determine profit, which is the difference between two values.

The marginal values of costs and income (the last two columns of the table) were calculated as the quotient of the difference in the corresponding gross indicators (income, costs) per volume. While the enterprise's output is 40 units of goods, it is observed maximum profit and marginal expenses are covered by similar incomes. As soon as the business entity increased its output to 50 units, a condition occurred in which costs exceeded income. Such production has become unprofitable for the enterprise.

Total and marginal income, as well as information about the value of the good and gross costs, helped to identify the optimal volume of output at which maximum profit is observed.

Limit values may seem like something purely theoretical and unrelated to the actual conduct of business at an enterprise only due to the lack of practice in working with them during the Soviet and perestroika periods. In fact, limit values are the most effective method track opportunities for potential profit increase, which is what all enterprises strive for without exception. As for their logic and calculation, it is nothing more complex than elementary algebra.

Marginal revenue is the amount a company receives from selling an additional unit of a product. It is one of the main limiting values that has a direct connection with profit and price - two the most important indicators company activities. Marginal revenue is a value that has different meanings depending on the company. Thus, to carry out analysis using marginal income, it is necessary to compile a table reflecting the change in this value as sales volumes change.

To make it clearer, let's give a definition of marginal income. Marginal revenue is the change in the company's total income resulting from an increase in sales by one conventional unit. For example, your company sold 20 units of products for 10 rubles each. Then they increased by one, but the price remained the same. In this case, the marginal income will be equal to 20 rubles.

It may seem that, given a constant price, marginal revenue will always be equal to the value this very price, and therefore it makes no sense to carry out further calculations of this indicator. However, it is not. As you know, with an increase in sales volumes, an enterprise is forced to reduce the price in order to attract those buyers who will not buy the product at this price. It turns out that you benefit from increased volumes, but you lose from the fact that all goods are slightly cheaper. Marginal revenue, also known as marginal revenue, is used to determine which outweighs the gain or loss.

Let's give an example: as a result of an increase in sales volumes from twenty units to twenty-one units of production, the price of one unit decreased to 9 rubles and 50 kopecks. In this case, our new one will be equal to 199.5 rubles, which is 50 kopecks less than the income with the old volumes. It turns out that the marginal income is -50 kopecks. As it turned out, increasing sales volumes is not profitable for the enterprise.

The above example showed how limit values are used in management. If the revenue thresholds fall below zero, then the company needs to stop and curb the growth of production volumes in order to keep prices at an acceptable level. As long as marginal returns remain positive, there is scope for increasing volumes.

However, this analysis is somewhat incomplete. If marginal revenue is positive, we need to analyze businesses as well. Marginal costs show how much costs have changed as a result of increased sales volumes. According to elementary logic, this value will be positive, since each new unit of production requires costs for its production. On the other hand, the more units of a product are produced, the less there is per unit of output until production capacity not fully loaded.

In any case, if marginal revenue is greater than marginal cost, then we receive marginal profit, which means we need to increase sales volumes. As a rule, this occurs until new equipment is required for production or active sales will not reduce prices on the market.

The concepts of “marginal costs” and “marginal revenue” are discussed in paragraph 1 of this topic: these are the costs and income associated with the production and sale of an additional unit of product, i.e. These are incremental values.
In a market economy, these concepts are very important for determining optimal level prices and production volumes.
The famous American economist P. Samuelson formulated the rule of equality of marginal income as follows: marginal cost: Only when the price of goods equals marginal cost does the economy squeeze the maximum possible out of the limited resources and technologies available.
Thus, the rule of equality of marginal revenue to marginal costs means the condition of profit maximization.
This rule is a guide to profit maximization for all types of markets: pure competition, monopolistic (imperfect) competition, oligopoly, monopoly. However, the conditions for its use change and will be discussed further.
The easiest way to illustrate the rule of equality of marginal revenue to marginal costs is by the example of pure competition (Table 3.1). In this case, you should pay attention to the identity of the concepts “total”, “gross”, “full” income. The terms “total”, “gross” and “full” costs are also synonymous.
Table 3.1\r\nVolume Aggregate Total Average Aggregate Marginal\r\noutput income, costs, costs, income,\r\nproduct rub. ki, rub. units Products, rub. rub./unit rub./unit\r\ntion, units tions, rub. Products Products\r\nQ TR=PQ TC AC=TC/Q H=TR-TC MC=ATC/AQ MR=ATR/AQ\r\n1 2 3 4 5 6 7\r\n15 7500 5880 392 1620 340 500\ r\n16 8000 6220 388 1780 380 500\r\n17 8500 6600 388 1900 425 500\r\n18 9000 7025 390 1975 475 500\r\n*
19 *
9500 *
7500 394 *
2000 *
530 *
500\r\n20 10000 8030 401 1970 590 500\r\n21 10500 8620 410 1880 655 500\r\n22 11000 9275 421 1725 725 500\r\n23 11500 100 00 434 1500 \r\n* - maximum profit values and corresponding them parameters.
Conditions for maximizing profits in the short term under pure competition
In table 3.1, production parameters are determined as follows (the designations in the formulas correspond to those generally accepted in the books of Western economists).
Total income = price volume of output:
TR = PQ.
Gross, or full, costs = fixed costs + variable costs:
TC = FC + VC.
Average costs = gross costs: volume of output:
TC
AC = -. Q
Gross (total) profit = total income - gross costs:
P = TR - TC.
5. Marginal costs = change (increase) in costs: change (increase) in output:
MS = *TC.
AQ
6. Marginal income = change (increase) in income: change (increase) in output:
MR = -.
Q
Analysis of the table 3.1 shows that total (gross) income (column 2) is obtained by increasing the volume of output (column 1) by the same price, equal to 500 rubles. This is due to the fact that in the example under consideration, conditions of pure competition are accepted, under which the company cannot influence the price, but only adjust to it.
As a result, price (P) and marginal revenue (MR) are equal (P = MR).
As can be seen from table. 3.1, the maximum value of gross profit (2000 rubles) corresponds to a production volume equal to 19 units. In this case, marginal revenue (MR) is equal to marginal cost (MC): MR = MC.
An increase in production volume above 19 units, for example, to 20 units, leads to the fact that marginal cost (MC) exceeds marginal revenue (MR): 590>500 (MC>MR).
This example illustrates the rule of equality of marginal revenue to marginal costs, i.e. MR = MS. Since in conditions of pure competition, price equals marginal revenue, we can write:
P = MR = MS,
which means: price equals marginal revenue and marginal cost.
Thus, price determination is based on the rule of equality of marginal revenue to marginal costs, which corresponds to the maximum gross profit.
Graphically this rule is shown in Fig. 3.5. At point A the MC and MR curves intersect, i.e. MR = MS.
Thus, we can conclude that in conditions of pure competition, the company does not face the problem of determining the price of its products, since the price is determined in the market under the influence of supply and demand, and the share of products produced by the company cannot influence it.
Subject economic analysis and regulation in this case is only the optimization of production volumes at the current price.
Because the pure competition, like a pure monopoly, is an ideal model and is extremely rare, then most market structures lies somewhere between these extremes.
Rice. 3.5. The profit-maximizing position of a firm under pure competition
The principles of pricing under different market models are given in Table. 3.2.
In conclusion, it should be noted that the above provisions are somewhat conventional and debatable.
Table 3.2
Principles of pricing under different market models\r\nCharacteristic Type of market\r\nfeature Pure Monopolistic Oligopoly Pure\r\n competition monopoly\r\nBasic price Developed Developed on Developed on Absent\r\n in the market market by market groups or \r\n similar products are installed on \r\n the basis of secret \r\n conspiracy \r\nAdjustment Absent Adjusted according to the base price Absent \r\nlevel of competitiveness \r\nSubject (over- Optimization Search for the interval Level of average Level\r\nlast) of economic volumes about changes in production costs and satisfactory averages from\r\nproduction analysis at a given price of satisfactory support and\r\n the existing economic fair\r\ n price of profit profit\r\nState- Absent Absent Antitrust Antimonopoly regulation laws complete laws\r\n