What is marginal cost?
Marginal cost refers to the additional cost incurred when producing one more unit of a product or service. It focuses on the change in total cost relative to output.
Why is marginal cost important?
It helps businesses make production and pricing decisions. Understanding marginal cost ensures that additional production remains profitable.
How is marginal cost calculated?
Marginal cost equals the change in total cost divided by the change in quantity produced. This highlights the cost of incremental output.
What factors influence marginal cost?
Factors include labour efficiency, raw material costs, production capacity, and economies of scale.
How do businesses use marginal cost in decision making?
Businesses compare marginal cost to selling price. If the price exceeds marginal cost, producing additional units generates profit.