Marginal cost - Comparing Marginal and Average Concepts
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What is marginal cost? How do you compare marginal and average concepts? Why is marginal analysis important for business management?
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Solution Summary
The solution provides a detailed explanation for marginal costs, as well as a comparison between marginal and average concepts. The solution outlines the importance of marginal analysis for business management, including factors such as production costs and pricing.
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Marginal cost is, essentially, the cost of producing one more unit. For example, consider a factory that makes widgets. The company has overhead costs, material costs, and labor costs associated with the production of widgets. If the total overhead, material, and labor costs are $1,000,000 and the factory produces 1,000 widgets, the average cost per widget is $1,000. Now, let's suppose that the plant has a little idle capacity and to produce 1,001 widgets, all that is needed is $200 in additional materials. We would say that the marginal cost at this point was $200. This is because the plant has all the other resources necessary to produce the widget besides the additional materials. ...
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