Lesson 5-3: Cost, Revenue,
& Profit Maximization
Finding Marginal Cost
• The costs that an organization incurs
even when there is little or no activity
are fixed costs, or overhead.
Finding Marginal Cost
• Variable costs are usually associated
with labor and raw materials and
change with the business’s rate of
operation or output.
Finding Marginal Cost
• Total cost is the sum of fixed and
variable costs.
Finding Marginal Cost
• Marginal cost is the extra cost
incurred to produce one more unit of
output.
Finding Marginal Revenue
• Average revenue is the average price
of every unit of output.
• Total revenue is all of the revenue a
business receives.
Finding Marginal Revenue
• Marginal revenue is
the extra revenue a
business receives from
the production and
sale of one additional
unit of output.
• Marginal revenue is the
most important
measure of revenue.
Profit Maximization and Break-Even
• Profitability is affected by both costs
and revenue.
• The profit-maximizing quantity of
output is the volume of production
where marginal cost and marginal
revenue are equal.
Profit Maximization and Break-Even
• The break-even point is the level of
production that generates just enough
revenue to cover total operating costs.
Profit Maximization and Break-Even
• The Internet is one of the fastestgrowing areas of business today.
• E-commerce has much lower
overhead and does not require as
much inventory as traditional retail
stores, so the break-even point of
sales is much lower.