marginal cost

Examples of marginal cost in the following topics:

• Average and Marginal Cost

  • Marginal cost includes all of the costs that vary with the level of production.
  • Marginal cost is not related to fixed costs.
  • When the average cost declines, the marginal cost is less than the average cost.
  • When the average cost increases, the marginal cost is greater than the average cost.
  • This graph is a cost curve that shows the average total cost, marginal cost, and marginal revenue.

• Marginal Cost Profit Maximization Strategy

  • In order to maximize profit, the firm should set marginal revenue (MR) equal to the marginal cost (MC).
  • Marginal cost is the change in total cost divided by the change in output.
  • An example of marginal cost is evident when the cost of making one pair of shoes is $30.
  • Firms will produce up until the point that marginal cost equals marginal revenue.
  • This graph shows a typical marginal cost (MC) curve with marginal revenue (MR) overlaid.

• Marginal Revenue and Marginal Cost Relationship for Monopoly Production

  • For monopolies, marginal cost curves are upward sloping and marginal revenues are downward sloping.
  • Marginal costs get higher as output increases.
  • Production occurs where marginal cost and marginal revenue intersect.
  • Production occurs where marginal cost and marginal revenue intersect.
  • Analyze how marginal and marginal costs affect a company's production decision

• The Supply Curve in Perfect Competition

  • The total revenue-total cost perspective and the marginal revenue-marginal cost perspective are used to find profit maximizing quantities.
  • The various types of cost curves include total, average, marginal curves.
  • There are two ways in which cost curves can be used to find profit maximizing quantities: the total revenue-total cost perspective and the marginal revenue-marginal cost perspective.
  • The marginal revenue-marginal cost perspective relies on the understanding that for each unit sold, the marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).
  • If the marginal revenue is greater than the marginal cost, then the marginal profit is positive and a greater quantity of the good should be produced.

• Monopoly Production Decision

  • To maximize output, monopolies produce the quantity at which marginal supply is equal to marginal cost.
  • If we assume increasing marginal costs and exogenous input prices, the optimal decision for all firms is to equate the marginal cost and marginal revenue of production.
  • Because of this, rather than finding the point where the marginal cost curve intersects a horizontal marginal revenue curve (which is equivalent to good's price), we must find the point where the marginal cost curve intersect a downward-sloping marginal revenue curve.
  • Like non-monopolies, monopolists will produce the at the quantity such that marginal revenue (MR) equals marginal cost (MC).
  • Calculate and graph the firm's marginal revenue, marginal cost, and demand curves

• Optimal Quantity of a Public Good

  • The government is providing an efficient quantity of a public good when its marginal benefit equals its marginal cost.
  • The supply curve for a public good is equal to its marginal cost curve.
  • The public good provider uses cost-benefit analysis to decide whether to provide a particular good by comparing marginal costs and marginal benefits.
  • Output activity should be increased as long as the marginal benefit exceeds the marginal cost.
  • An activity should not be pursued when the marginal benefit is less than the marginal cost.

• Individuals Make Decisions at the Margins

  • The cost or benefit of the single decision is called the marginal cost or the marginal benefit.
  • In theory, individuals will only choose an option if marginal benefit exceeds marginal cost.
  • The prices represent the marginal costs of each car; purchasing the car will add the cost of the car to your total costs.
  • The tools of marginal analysis can illustrate the marginal costs and the marginal benefits of reducing pollution.
  • At point $Q_c$, the marginal costs will exceed the marginal benefits.

• Marginal Productivity and Income Distribution

  • Demand for the type of workers that can provide positive marginal productivity over marginal cost will see an increase in their wages.
  • Firms will hire workers if the marginal productivity of the worker is greater than the marginal cost.
  • That is, firms will hire someone if the employee can produce more value for the firm than s/he costs in wages or salary.
  • If a country has a number of workers with high marginal productivity proportional to marginal cost, firms will want to hire those workers.
  • Firms, such as pharmacutical companies, will hire more scientists if the marginal productivity is greater than the marginal cost.

• Marginal Productivity and Resource Demand

  • Firms will demand more of a resource if the marginal product of the resource is greater than the marginal cost.
  • The marginal product of a given resource is the additional revenue generated by employing one more unit of the resource.
  • A firm will continue to employ more of the resource until the marginal revenue equals the marginal cost to the firm.
  • If each firm has a positive marginal productivity of using more water in their manufacturing process, they will use more water since it's free (there is no, or limited, marginal cost).
  • When firms have positive net marginal productivity from using more oil, demand for oil will rise.

• Deriving the Labor Demand Curve

  • The cost of labor to a firm is called the wage rate.
  • This can be thought of as the firm's marginal cost.
  • This can be thought of as the marginal benefit.
  • The amount a factor adds to a firm's total cost per period is the marginal cost of that factor, so in this case the marginal cost of labor is $10.
  • Firms maximize profit when marginal costs equal marginal revenues, and in the labor market this means that firms will hire more employees until the wage rate (marginal cost of labor) equals the MRPL.