Marginal private cost is the change in cost when production or consumption of a good or service is changed by a single unit. It helps individuals and businesses determine if making a change is the best approach and can aid in budget planning and resource management.
Marginal private cost is a term used to identify the change in cost that is involved when the production or consumption of a good or service is changed by a single unit. This type of calculation can be used by both individual consumers and companies, allowing both to determine if making that change is truly the best approach. Taking the time to accurately estimate private marginal cost can help you plan budgets and schedules more effectively, allowing you to make more efficient use of available resources.
For the individual consumer, private marginal cost can help determine the amount of benefit derived from spending a little more and purchasing an additional unit of a good or service that is used routinely. The cost of that additional acquisition can be compared to the benefits associated with having access to the addition and decide if the additional cost is justified. For example, if a consumer has the option of buying one brand of cake mix at a fixed price, or buying a different brand that is slightly higher in cost but is currently on sale, when you buy one, get one free item. , the marginal private cost will be the difference between the price of the two brands. The benefit is the ability to bake two cakes instead of one, effectively reducing the total cost of preparing the two cakes, making the deal profitable for the consumer.
Similarly, marginal private cost can also relate to a business owner trying to decide whether producing an additional unit of a good or service is worth the time and effort. A baker may find that increasing the production of pies by one per day results in an increase in the marginal private cost of baking pies by only 10%. While there is a small amount of marginal private cost involved, it is easily offset by the additional profit made when all cakes produced are sold at the standard and customary price. Similarly, a manufacturer may find that the cost of producing an additional unit of a good only increases marginal private cost by US$20. Assuming that all units produced sell for a retail price of $50 USD each, there is a good chance that the benefits of producing that one additional unit will easily outweigh the total cost of production.
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