Marginal cost is very important in businesses because it helps the companies in making important decisions of the company. It is the change in the total cost of the company which can arise when the quantity of the units produced is changed by one unit. Marginal cost is usually defined as the derivative of the total cost with respect to the quantity. It can change with the change in the production and volume. For example, if a company estimates that for each new unit production the company incurs marginal cost of $2 then it means that the company if go from 98 to 99 units then its cost will increase by $2. Similarly, marginal profit is the dollars earned with the production of each additional unit such as if $3 is the marginal profit then it means that with one unit increase in production you can earn additional $4.
These two are one of the most important concepts in Micro economics. Marginal cost is the cost which is incurred inclemently if an activity is taken up while marginal revenue is the revenue one gets after selling additional unit of good or service.
For a perfect market , equilibrium is achieved where marginal revenue meets marginal cost. It is the point where a person earns normal profits under Perfect competition. Best option to solve the problems on marginal cost and revenue is to construct tables with different columns outlining the total revenue, total cost, marginal cost, marginal revenue, total number of goods etc. Now place Total number of goods in the first column and than total cost, marginal cost, total revenue, marginal revenue. By simple arithmetic you can find out the marginal revenue and marginal cost functions and can calculate them very easily.
Another good way to find out the solutions for marginal cost and marginal revenue questions is to plot them against graphs. Graphs give you a more rapid answer and can show you all the patterns for revenue and cost analysis. With graphs you can easily spot the movement of these two factors and can further deliberate on them.
The world of finance is vast, with a number of complex calculations that affect important transactions. In the growing consumer market, there is constant need for up-gradation of intricate financial details. There are certain calculations that are affected by time and day too! In such a scenario, it is but natural that persons engaged in important transactions should know the various calculations that make a difference to routine business deals.
Marginal cost of a product is the value of the resources need in addition, to create another unit of output. Marginal cost analysis is the economics related to the estimated effect on financial quantities in the peripheral. These are basically cost, revenue and profit. When the marginal cost is equal to the revenue or the price allotted, profits are not maximized. This is better understood by the following equation: If C(l) is the cost of producing 'l' number of units of a product, then the marginal cost MC(l) is basically one additional unit further understood by, MC(l)=C(l+1)-C(l).
The marginal cost of a product, the effect of the revenue and the profit targeted are all calculated to ensure that the business involved and the risks undertaken for production are worthwhile. The simple application of the equation helps to calculate and understand the relationship between the three factors.
A telephone company in a town has 1000subscribers on its list and collects a fixed charge of Rs.400 per subscriber per year. The company proposes to increase the annual subscription and it is believed that for every increase of Re.1, one subscriber will discontinue the service. Find what increase will bring maximum revenue to the company.
