XYZ Company is aware that microeconomics plays a general role in its organization's success

The theories underlying microeconomics can assist any organization in making decisions. For example, if an increase in price causes a decrease in total revenue, then our product is elastic. In other words, price changes have an impact on demand. Specifically, the price elasticity of demand is the change in demand based on the change in price. The income elasticity of demand, on the other hand, is the change in demand based on the change in income of the consumer. Therefore, if a consumer makes more money, they might want more of our product. However, the law of diminishing marginal utility states that as they purchase more of our products the marginal (additional) utility derived from each unit decreases. So instead of purchasing our products indefinitely they will utilize the utility maximization rule to make sure the last dollar spent on our product delivers the same amount of extra marginal utility. All of this information should give XYZ a solid foundation in consumer demand and expected revenues.

In terms of costs, we must distinguish between variable costs (those that increase relative to output) and fixed costs (those that remain same). The marginal cost is the change in the total cost (fixed plus variable) for each additional unit produced. The average cost is the cost per unit that is produced. To calculate profits we would subtract total costs from total revenues. Economic profit is also an important concept to explore. It is total revenue minus total costs and opportunity costs (things that are firm forgoes to undertake a particular action). If we have a normal profit, our economic profit would be zero, which would mean we using all our resources efficiently.