What’s Marginal Cost?
In economics, marginal cost is one of the key concepts and an essential concept that is involved in costing. This marginal cost is called the underlying asset cost or marginal cost basis, it is the cost element that can be changed without reducing cash flow. In any business, marginal cost will always be changing and it is also called a marginal cost factor, marginal cost basis is a concept that is very important and vital in any business, marginal cost will always depend upon factors like production capacity, location, overhead, capacity, and so on. It also depends upon the inputs or factors, so the only thing that can change a marginal cost basis is your inputs or factors. With the help of a marginal cost calculator, it becomes easy for anyone to determine or calculate the marginal cost basis of any business easily.
Marginal Cost Formula
Marginal Cost = Total Variable Costs / Change in Quantity;
Total Variable Costs = 2570
Change in Quantity = 475
Formula: Marginal Cost = Total Variable Costs / Change in Quantity
Marginal Cost = 2570 / 475
Marginal Cost = 5.41
Marginal Cost and Marginal Benefit Analysis in Economics
The economic news today has been all about marginal cost and marginal benefit. marginal cost is the price elasticity of demand or the price difference between demand and supply. For example, suppose I want to build a shed and I figure out that if I buy lumber one unit at a time, I will be able to build one thousand units over the next ten years. That would be my marginal cost and marginal benefit graph in economics.
Now then, the problem with marginal analysis in economics is that it is very difficult to objectively evaluate the various proposals on economic issues such as that one. One problem is that most people are not economists so they do not understand that there is an objective way to look at the costs and benefits of different proposals. They just see what makes sense to them. And that is where marginal analysis fails them because they do not know how to objectively evaluate the various proposals. They are not used to doing so and they get caught up in using their gut feelings and voting the popular direction simply because they have already made up their mind.