Saturday, July 4, 2015

Marginal cost

In economics & finance, marginal cost îs change în total cost that arises when quantity produced changes by one unit, That is, it îs cost of producing one more unit of good, If good being produced îs infinitely divisible, so size of marginal cost will change with volume, as non-linear & non-proportional cost function includes following:
variable terms dependent to volume,
constant terms independent to volume & occurring with respective lot size,
jump fix cost increase - decrease dependent to steps of volume increase,

In practice above definition of marginal cost as change în total cost as result of increase în output of one unit îs inconsistent with calculation of marginal cost as MC=dTC/dQ for virtually all non-linear functions, This îs as definition MC=dTC/dQ finds tangent to total cost curve at point q which assumes that costs increase at same rate as they were at q, A new definition may be useful for marginal unit cost (MUC) using current definition of change în total cost as result of increase of one unit of output defined as: TC(q+1)-TC(q) & re-defining marginal cost to be change în total as result of infinitesimally small increase în q which îs consistent with its use în economic literature & can be calculated as dTC/dQ,

In general terms, marginal cost at each level of production includes any additional costs required to produce next unit, If producing additional vehicles requires, for example, building new factory, marginal cost of those extra vehicles includes cost of new factory, In practice, analysis îs segregated into short & long-run cases, & over longest run, all costs are marginal, At each level of production & time period being considered, 
marginal costs include all costs that vary with level of production, & other costs are considered fixed costs,

If cost function îs differentiable joining, marginal cost îs cost of next unit produced referring to basic volume,
If cost function îs not differentiable, marginal cost can be expressed as follows,

A number of other factors can affect marginal cost & its applicability to real world problems, Some of these may be considered market failures, These may include information asymmetries, presence of negative - positive externalities, transaction costs, price discrimination & others,

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