Question

Use marginal costs correctly in a sentence.

Short answer

An example of a sentence using 'marginal cost' is: 'In order to maximize profit, a business must evaluate the marginal cost of producing an additional unit of a product against the unit’s potential selling price.'

Step-by-step solution

Understand Marginal Cost

Firstly, it's important to grasp what 'marginal cost' means. In economics, marginal cost is the additional cost incurred by producing one more unit of a good or service.

Formulate a Sentence

With the understanding of marginal costs, form a sentence by referring to an instance where a business may have to evaluate the cost of producing an additional unit of a product.

Implement Marginal Cost in the Sentence

In this step, you incorporate the term 'marginal cost' in a sentence in relation to a business scenario.

Key concepts

Marginal Cost Definition

Marginal cost plays a crucial role in economic theory and business practice as it helps in determining the cost-effectiveness of increasing production.

Simply put, the marginal cost is the cost incurred to produce one additional unit of a product or service. This concept is calculated by taking the change in total cost when the output is increased by one unit. For instance, if a company’s total cost increases by \(5 when it produces one extra widget, then the marginal cost for producing that additional widget is \)5.

Calculating Marginal Cost

Mathematically, the formula for marginal cost is expressed as: \[ MC = \frac{\Delta TC}{\Delta Q} \] where \( MC \) is marginal cost, \( \Delta TC \) is the change in total cost, and \( \Delta Q \) is the change in quantity produced.

Understanding marginal cost is vital as it helps businesses decide whether or not it is beneficial to increase production, which is intrinsically linked to the concept of economies of scale and efficient production levels.

Economic Concepts

Marginal cost is just one of many economic concepts that provide a framework for understanding the complexities of the marketplace. These concepts form the backbone of economic analysis and are vital for making sense of how businesses and economies operate.

Core Economic Concepts

• Supply and Demand: This refers to the relationship between the availability of a product or service (supply) and the desire for it (demand), which affects prices.
• Opportunity Cost: This is the cost of the next best alternative foregone when a decision is made.
• Economies of Scale: This concept suggests that the average cost of production decreases as the scale of production increases.
• Elasticity: This measures how much the quantity demanded or supplied responds to changes in price or other factors.

Each concept sheds light on different aspects of economic behavior and helps explain real-world phenomena such as pricing, consumer preferences, production choices, and market equilibrium.

Economic Decision-Making

In the sphere of economic decision-making, the understanding and application of marginal costs are imperative for businesses. Decision-making in economics involves analyzing the costs and benefits of various options and choosing the most advantageous outcome.

When faced with a decision, businesses consider the marginal cost in conjunction with marginal revenue, which is the additional income from selling one more unit. If the marginal revenue exceeds the marginal cost, producing more can lead to increased profit. Conversely, if the marginal cost is higher, it may not be profitable to expand production.

Rational Decision-Making

The goal of economic decision-making is to allocate resources in the most efficient way to maximize utility or profit. This requires an understanding of key economic principles and the ability to make rational choices based on quantitative data. At its core, it's about answering the fundamental question: Will the benefits of producing or consuming one more unit outweigh the costs?