Marginal costs
Marginal cost is the extra cost incurred by producing one additional unit of a good or service. It refers to the change in total cost as a result of producing one additional unit.
Marginal costs have major impact on production decisions
Marginal costs are determined by variable costs, which depend on the quantity of units produced. When a firm produces more units, variable costs will increase and so will marginal costs. This is because additional resources, such as raw materials or labor, must be used to increase production. Marginal costs can be important for companies when making decisions about optimizing their production. By comparing the marginal cost to the revenue from the additional unit, a company can determine if it is profitable to produce more. If marginal costs exceed revenues, it may be more profitable to reduce production.
