Question

Applying the concept of marginal costs, how would you, as a business owner, decide how much to produce?.

Answer 1

To calculate marginal cost, divide the change in production costs by the change in quantity. The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale to optimize production and overall operations.

What is marginal cost?

The marginal cost in economics is the change in total cost that occurs when the quantity produced is increased, or the cost of producing additional quantity.

According to the law of declining marginal utility, as consumption increases, the marginal utility obtained from each extra unit decreases.

Marginal cost is an important concept in economic theory because a corporation seeking to maximise profits will produce until marginal cost (MC) equals marginal revenue (MR) (MR). After then, the cost of creating an additional item will outweigh the money generated.

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