Create a 3 page essay paper that discusses Eco Business.Marginal Cost Marginal cost is the additional cost incurred per unit of quantity being produced. As the adjoining diagram shows, total cost of p

Create a 3 page essay paper that discusses Eco Business.

Marginal Cost Marginal cost is the additional cost incurred per unit of quantity being produced. As the adjoining diagram shows, total cost of production rises slowly at the beginning, so that the marginal cost curve is downward sloping in nature. It reaches the minimum point when the slope of TC is the flattest. Eventually, when MC starts rising when TC begins a steep rise during the latter parts of the production process. Thus, while TC is inverted S-shaped, MC is found to be U-shaped as the diagram depicts (Samuelson, 2005, p.126). Profit Maximisation Profit is the difference between the total revenue earned and total cost being incurred in order to earn the revenue. Thus, profit could be represented as a function of the quantity being produced as follows – ? = TR – TC = (P x Q) – (C x Q) Profit maximisation thus, could be brought about by producing the appropriate volume of quantity. In order to decide this quantity, it is necessary to undergo the methods of calculus. Optimal Quantity of Output Accordingly there are two conditions that must be satisfied to figure out the suitable quantity. First order condition – ??/ ?Q = MR – MC = 0 MR = MC Second order condition – ?2?/ ?Q2 = MR’ – MC’ &lt. 0 MR’ &lt. MC’ . where, MR’ = ?(MR/ ?Q) and MC’ = ?(MC/ ?Q) Thus, profit maximisation can occur only when Marginal Revenue and Marginal Costs of production are equal. The SOC on the other hand requires that at the point of equality, the slope of MR must be lower than that of MC or rather the MR curve should be falling while MC must be rising. Actually the point where MC and MR are both downward sloping is featured by a steeper MR which does not satisfy the SOC. The appropriate situation could be depicted in terms of the diagram underneath. The appropriate intersection should be at a point like E where MC is upward rising and MR is sloping down implying that the slope of MR is lower than that of MC. In fact, MR cuts MC at an earlier point as well but there MC is downward sloping so that the second-order condition is not met. In case that the marginal revenue is found to be greater than the marginal cost of production, normally, it means that an additional unit’s production will reap a revenue greater than the cost incurred in producing the unit. Thus, a firm aiming at profit maximisation will start producing more units of the commodity until the amount of cost incurred is equated with the additional amount of revenue yielded. On the other hand, in case that the marginal cost is found to be higher than the marginal revenue of production, it implies that the additional cost of producing a unit of commodity is much higher than the revenue that the commodity is reaping. In other words, production of each additional unit leads to loss for the firm. Hence, a firm aiming at profit maximisation will not produce beyond the limit where the marginal cost of production is higher than the marginal revenue earned by each unit’s additional production. As a concluding note, it should be said that the above result is found to hold true irrespective of the type of market that the producer is operating in.