What is the limit profit?

The limit profit is a profit that would be achieved by the production and sale of one other unit of the product or service. It is therefore the difference between marginal costs and marginal revenues for other units. One economic theory states that the company should continue to increase production and sale until the marginal profit falls to zero. Although the effects of this inconsistency do not mean a big difference in average costs and income, they may be significant for marginal costs and income. The limit calculations are therefore based on a specific level of production on which the company is at the time of the calculation. If the workforce does not work on full capacity, the cost of marginal labor will be zero: existing workers will be able to produce another unit during their shift. If the workforce operates on capacity, the cost of the marginal labor could be very high: the contractual conditions may mean that for the production of one unit, it also requires to pay a worker at least an hour of overtime, even if the work lasts only a few minutes. Other factOry, such as electricity or raw materials, of course, may not differ.

marginal income may also vary. In general, marginal income will fall with increasing amounts of sales. This is partly the fact that once the price of the product finds its natural level, it will take to reduce the price to buy more customers. Another factor is that increasing sale may require negotiations with customers or wholesalers.

In most cases, marginal income starts negatively, with an increase in sales, reaches the peak, then decreases again and eventually become negative. This is because for a company starting with zero, the fixed cost of running and the and the revenue of the sale of a small number of units will significantly exceed. Increasing sales will mean that fixed costs play a smaller role in each additional unit sold. Peak and decline comes when prices have to drop to attachSluders were other buyers and reached a possible point where marginal costs no longer exceed marginal income.

One version of the economic theory of profit maximization is simply based on marginal gain. It states that the ideal level of production and sales is that where the marginal profit has decreased to zero. In addition to this moment, further production and sale will actually cost the company's money. Although this theory basically works, there may be defects, such as an example of the need to pay overtime to create one additional unit. In order to prevent this, the economist can instead look for a point in which marginal income starts permanently at zero or even negative.