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In economics, the marginal cost is the change in the total cost that arises when the quantity produced is increased, i.e. the cost of producing additional quantity. [1] In some contexts, it refers to an increment of one unit of output, and in others it refers to the rate of change of total cost as output is increased by an infinitesimal amount.
Marginal cost and marginal revenue, depending on whether the calculus approach is taken or not, are defined as either the change in cost or revenue as each additional unit is produced or the derivative of cost or revenue with respect to the quantity of output. For instance, taking the first definition, if it costs a firm $400 to produce 5 units ...
The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
The MC company maximises profits where marginal revenue equals marginal cost. Since the MC company's demand curve is downwards-sloping, the company will charge a price that exceeds marginal costs. The monopoly power possessed by a MC company means that at its profit-maximising level of production, there will be a net loss of consumer (and ...
Diminishing marginal product ensures the rise in cost from producing an additional item (marginal cost) is always greater than the average variable (controllable) cost at that level of production. Since some costs cannot be controlled in the short run, the variable (controllable) costs will always be lower than the total costs in the short run.
The decision of increasing the production is only beneficial if the MP K is higher than the cost of capital of each additional unit. Otherwise, if the cost of capital is higher, the firm will be losing profit when adding extra units of physical capital. [3] This concept equals the reciprocal of the incremental capital-output ratio.
Marginal profit at a particular output level (output being measured along the horizontal axis) is the vertical difference between marginal revenue (green) and marginal cost (blue). In microeconomics, marginal profit is the increment to profit resulting from a unit or infinitesimal increment to the quantity of a product produced. Under the ...
A marginal benefit is a benefit (howsoever ranked or measured) associated with a marginal change. The term “marginal cost” may refer to an opportunity cost at the margin, or more narrowly to marginal pecuniary cost — that is to say marginal cost measured by forgone cash flow. Other marginal concepts include (but are not limited to):