Marginal Revenue, Essay Example

Introduction

Marginal revenue is the increase in revenue that often results from the sale of one unit of additional. Marginal revenue can remain constant for some time as it follows the law of diminishing returns. Microeconomics focuses on the behavior of individual firms and households in making decisions on the allocation of the limited resources. The goal is to provide an analysis of the market mechanisms used to establish relative prices of goods and services. It analyzes market failure when markets fail to produce efficient results and the theory behind perfect condition. The aim of the essay is to present an analysis of the economic concerns that have affected the American economy. The essay will also seek to give an investigation of the markets and the government requirements that will see the realization of revenues and profits. The marginal revenue will be discussed relative to the impact it has on industries, businesses, individual products and individual consumers.

Body

An examination of the microeconomic foundations of prosperity and competitiveness across many nations began decades ago. The approach is focusing and still focuses on the measurements and comparisons of national circumstances that support sustainable and high levels of productivity. The microeconomic approach was also aimed at highlighting the fact that improvement in the competitive world is not a simple linear process where nations have to progress on a constant set of dimensions (Cornelius, 2003, p. 23). Successful economic developments have a requirement that nations should develop the ability to compete in ways that are sophisticated; in order to support higher levels of national income and wages. The microeconomic condition of productivity rests on the quality of the microeconomic business surroundings and the erudition with which the overseas and domestic companies working in the country compete.

Microeconomic condition is influenced by purposeful action in the private sector and the government so that findings in the research can carry some meaningful implications for policy. Any weakness in microeconomic could hold back any potential productivity growth, and a collapse of any institution is inevitable (Cornelius, 2003, p. 24). Stable legal, social and political institutions and sound microeconomic policies create a stable ground for improving national prosperity. At the microeconomic level, wealth is created that is in the ability of firms to create valuable services, as well as goods using the most efficient methods. This is the only way in which nations can have the ability to support high wages. The nations will also be able to attract returns to capital that is necessary to support sustained investment. Microeconomic condition is therefore, important in the development of successful economic environments.

Microeconomics uses a variety of concepts, marginal revenue and marginal costs being among them. Companies in the United strive to obtain profit maximization by trying to ensure that marginal costs equal marginal revenue. Microeconomic activities take place in the market, which could either be in the perfect competition or monopoly structure. Analysis of the markets has enabled the American state to predict prices, profitability, resource allocation and output (Folsom, & Boulware, 2009, p. 307). Through this, the impact of taxes, social policies, subsidies and barriers to entry will also be predicted. Firms have realized that employee pay is based on the worker’s marginal revenue product. Increased income will be realized through efforts to increase worker productivity. Marginal revenue is therefore, important as it sees increase in income as well as the way trade is conducted.

Steps the federal government is taking or may take to affect the situation or the future of this microeconomic condition

Price controls can be effective in a market that is controlled by monopolists. The monopolists can be sellers who face the market demand curve and producing where marginal revenue is equal to the marginal cost. In this case, the equilibrium quantity and price are established at given points. If such a case occurs the government can set prices that are below the established points and increase the quantity produced. The government can come up with monopolies through licenses and patents. Through this, producers are given rights on new processes and devices (Folsom, & Boulware, 2009, p. 314). Patents allow patent holders to create improved and new products leading to the realization of profits by the patent holder. The result will be increased profits and revenue for the government. Price control is vital for any state though it sometimes bring unintended effects, which can be difficult to deal with than the increase of prices with which it is intended to limit. The government therefore, should consider the issue of price control considering that it has both benefits and limitations.

Monopolies can help control critical resources. Monopolies in the United States include water, cable, electricity and telephone. Monopolies facilitate the manufacture of new goods and services for consumers’ thus increasing productivity. This means higher revenues and profits. Therefore, monopolies are essential in the production of sustainable economies.

The government can also take a step to control trade and any deficits in the current accounts. This is important as any imbalance can be a big drawback for the economic policies of the government. The market as it is now is flooded with the same products. This is because everyone is producing the same products and services at the same time. What the government should do is encourage specialization in those activities in which production costs are low, but at the same time producing what consumers (Boyes & Melvin, 2012, p. 28) desire. The market will be filled with diverse products and services, hence increased revenue for the government and increased profits for the sellers.

Conclusion

The modern business world is complex and uncertain, full of inaccurate information and limited time. Marginal revenue increases and decreases every financial year. Studies have shown that financial trends are varied depending on the conditions of the business environment. Most firms are nowadays facing so many constraints making them operate without the motive of maximizing profits, growth or sales. The government should therefore, take the initiative to study the business environment and markets. This will enable them come up with initiatives that will be beneficial to consumers, sellers as well as the government.

References

Boyes, W. & Melvin, M. (2012). Microeconomics. New York: Cengage Learning.

Cornelius, P. (2003). The Global Competitiveness Report 2002-2003. New York: Oxford University Press.

Folsom, W. & Boulware, R. (2009). Encyclopedia of American Business. New York: InfoBase Publishing