Extra unit of output that is produced
What Is The Concept Of Marginal Cost In Economics ? How Does It Seem To Differ From Average And Total Cost And Why Do Economics Prefer To Use Marginal Cost ?
Marginal cost means the additional cost of producing one more unit of out put. For example the total cost of producing one Cap is Rs. 100and the total cost of producing two Caps is Rs. 190. Then marginal cost will be 190-100= 90. As regards the relation of the costs, total cost increases with the increase in production but not according the same ratio. But variable cost increases in the same proportion with the production. While fixed cost remains the same. Average cost decreases with an increases in production in the beginning but as the firm achieves the full capacity, and then it begins to increase. Average cost is obtained by dividing the total cost by total number of commodities produced i.e. ATC= AVC+AFC. The total sum of money required for the production of a specific quantity is called the cost of production or total cost. Following elements are included in the total cost i.e. Rent of land, wages, interest, normal profit, wear tear, taxes and insurance charges etc. Economic prefer marginal cost because its curve decrease sharply with smaller out put and reaches to minimum. As production increases, it begins to rise in total variable cost.