The Causes and Effects of a Recession Essay - 2728 Words

Average cost is total cost divided by total output at a specific point. For instance if 100 units are produced and total cost incurred is 200 then average cost of one unit would be 2/unit. Whereas Average revenue is calculated same as average cost however, instead of total cost we take total revenue. Marginal cost is cost of producing one additional unit of output or in other words a rise in total cost when output rises by one unit. Similarly marginal revenue is the rise in total revenue when output rises by one unit. For instance, if total revenue generated by 100 units is 200 and for 101 units it is 201, then marginal revenue would be 201-200=1. Output/Sales Volume Total Cost Total Revenue Marginal Cost Average Cost Marginal Revenue†¦show more content†¦It can also be seen that when the marginal cost is lower than the marginal revenue, profit is increased. When marginal cost is equal to the marginal revenue profit is maximized. After this point, when marginal cost is above the marginal revenue, profit starts to fall. Therefore, profit is maximized when MR=MC. In the above graph Y axis consists of amount whereas X axis represents level of output. It can be seen clearly that at output level of 8, MC=MR (two lines cross over here) which is the output where profit is maximized. Similarly as we extended the connector line above to get the price (average revenue) this is 23.5 as in the table above. Profit: When MC=MR, profit is 84 which is the highest possible amount in current circumstances. Possible Market Structure: It is clear from the above data that the firm is certainly not working under perfectly competitive market. In perfect competition, firm cannot afford to sell at lower price. If elasticity is calculated at different points, it can be seen that elasticity is decreasing from top to bottom but still the demand is very elastic. For instance at 9 units elasticity is 5 (in absolute terms) which is still much greater than 1 which means that it can be monopolistic competition or oligopolistic environment. But chances of monopoly are less because in monopoly demand is usually inelastic. However, to decide between oligopoly and monopolisticShow MoreRelatedThe Causes and Effects of Global Recession.3720 Words   |  15 PagesINTRODUCTION Here a definition a recession as well a global recession is mentioned. Some causes and effects has been listed. Due to recession occurring, I have identified the effects of recession based on Tesco. The causes and effects of global recession. Global financial crisis, increasing for a while, began to show its results in the mid of 2007 into 2008. 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