1. EGT1 Task 1
Task 1
EGT1
Anna Kinton
Western Governors University
Student ID: 000195178
Student Mentor: Pat Hardy

2. EGT1 Task 1
In this paper I am going to define a few common economic terms and explain their
relationships to other econmic terms. I will also explain how profit maximizing firms determin their
optimal level of output and how a profit maximizing firm will react to different levels of marginal
revenue.
Marginal revenue is the extra revenue that will be made by a firm when the firm sells one
additional unit of a product. Total revenue is simply the sum of a firm's sales of a specified quantity
of a particular product. So, while marginal revenue is telling how much extra money selling each
additional product will make a firm, total revenue is telling how much the firm will make by selling
a 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 certain
product. Profit is simply the a firm's total revenue after the firm pays for its operating costs, and
profit maximization is the the course of action that a firm takes to determine how much they will
produce and what they will charge per unit of production in order to provide the firm with the
greatest 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 where
marginal 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 firm's
profit maximixing potential. An additional unit of product after this point will only result in costing
the firm money, rendering marginal revenue as zero or negative.
If a profit maximizing firm's marginal revenue is greater than marginal cost, the firm will
continue adding another unit of product to production as long as marginal revenue is greater than or
equal to marginal cost. If a profit-maximizing firm's marginal revenue is less than marginal cost, the
firm would need to reduce its output to the point of optimal output where marginal revenue is again
equal to marginal cost.

3. EGT1 Task 1
References
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2012). Economics: principles, problems, and
policies. New York: McGraw-Hill.