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In economics, the marginal cost is the change in the total cost that arises when the quantity produced is increased, i.e. the cost of producing additional quantity. [1] In some contexts, it refers to an increment of one unit of output, and in others it refers to the rate of change of total cost as output is increased by an infinitesimal amount.
The formula can be expressed: =, means monopoly price set by firms means the marginal cost of production The Lerner index measures the level of market power and monopoly power that a firm owned.The higher Lerner index indicated the more monopoly power allows a company have chance to establish prices that are higher than their marginal costs and ...
The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
A typical average cost curve has a U-shape, because fixed costs are all incurred before any production takes place and marginal costs are typically increasing, because of diminishing marginal productivity. In this "typical" case, for low levels of production marginal costs are below average costs, so average costs are decreasing as quantity ...
An example diagram of Profit Maximization: In the supply and demand graph, the output of is the intersection point of (Marginal Revenue) and (Marginal Cost), where =.The firm which produces at this output level is said to maximize profits.
The minimum efficient scale can be computed by equating average cost (AC) with marginal cost (MC): = / = The rationale behind this is that if a firm were to produce a small number of units, its average cost per unit would be high because the bulk of the costs would come from fixed costs. But if the firm produces more units, the average cost ...
Calculus can be applied to understand how quickly a drug is eliminated from a body or how quickly a cancerous tumor grows. [65] In economics, calculus allows for the determination of maximal profit by providing a way to easily calculate both marginal cost and marginal revenue. [66]: 387
Under certain assumptions, the production function can be used to derive a marginal product for each factor. The profit-maximizing firm in perfect competition (taking output and input prices as given) will choose to add input right up to the point where the marginal cost of additional input matches the marginal product in additional output.