Question

Explain the following with an example:

Marginal cost.

Explain the following:

Marginal cost.

Answer 1

1. The marginal cost is the cost of producing one additional unit of a product.
2. The concept of marginal cost is very useful in making managerial decisions about price fixation, make-or-buy decisions, etc.
3. Example: A company produces 100 bicycles at a total cost of ₹ 10,000.
4. Producing one additional bicycle brings the total cost to ₹ 10,050.
5. The marginal cost is ₹ 50 (₹ 10,050 − ₹ 10,000).
6. This means that producing the 101st bicycle will cost an additional ₹ 50.
7. It helps firms determine the cost-effectiveness of increasing output.