Marginal cost is the cost of the last unit produced or consumed, taking into account the increase or decrease in production or consumption costs. It is important for producers and consumers, and can follow a curved line on a graph. Specialization and economies of scale can reduce costs, and stores often offer deals to encourage consumers to buy more units.
Marginal cost (MC) is the cost of the last unit produced in a manufacturing process, the last service performed, or the last unit consumed. It is an economic term that takes into account the decrease or increase in the costs of production or consumption of additional goods and services. Marginal cost is often related to marginal revenue, marginal benefit, and average and total cost.
The concept of marginal cost is important to people who produce or consume multiple units. Economies of scale generally favor lower marginal and average costs for additional inputs, although the MC may increase once maximum production capacity is reached. Marginal cost often follows a curved line on a graph, first decreasing as the process becomes more efficient and then increasing as additional production requirements make the process less efficient.
For example, a factory built to produce a product will require a large amount of initial cost. However, once built, the production cost of each product will decrease because it will take very little energy to use the existing machinery to increase production. However, the factory will eventually reach full capacity, and if additional products are desired, a new factory will have to be built, the old one will have to compensate workers for overtime work, or a variety of other expenses will be needed. to maintain production. going. In this case, the marginal cost will increase because the company will need to spend more energy, time, and money to continue producing additional goods.
Division of labor and specialization can also reduce the cost of producing additional units. Many companies take advantage of the benefits of specialization to reduce their production or service costs. Allowing workers to specialize in certain tasks can streamline manufacturing processes. The assembly line is a popular example of this concept because it allows workers or machinery to perfect and optimize smaller responsibilities.
Marginal cost is also important for consumers looking to buy additional units of a good or service. Stores often take advantage of this to offer deals and sales, such as buy one get one half price or buy one get one free (BOGO). This not only encourages buyers to purchase multiple units, but also generates revenue for the company. Consumers are much more likely to buy a second item at half price because the marginal cost is half the original cost. For BOGO deals that offer a free item, the MC is effectively zero.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
