Marginal Cost Calculation in Economics
What is the marginal cost when output is 60?
Choose the correct option:
- A. $3.50
- B. $4.50
- C. $9.00
- D. $5.00
What is the marginal cost when output is 80?
Choose the correct option:
- A. $3.50
- B. $4.50
- C. $9.00
- D. $5.00
What is the marginal cost when output is 120?
Choose the correct option:
- A. $3.50
- B. $4.50
- C. $9.00
- D. $5.00
Final answer:
The marginal cost for output quantities of 60, 80, and 120 is calculated using the change in total cost divided by the change in quantity. The resulting marginal costs are $3.50, $4.50, and $9.00 respectively.
Explanation:
The concept here is marginal cost, which refers to the additional cost incurred when producing one more unit of a product. Marginal cost is calculated by finding the change in total cost (TC) when output (Q) increases by one unit. Mathematically, this is expressed as MC = ΔTC/ΔQ. To get the marginal cost for quantities 60, 80, and 120, we must find the change in total cost for these increments of output.
- Output at 60: Here, the total cost increased from 200 to 270 when quantity increased from 40 to 60, making the marginal cost (270-200)/(60-40) = 70/20 = $3.50.
- Output at 80: Total cost rose from 270 to 360 when quantity increased from 60 to 80. Thus, marginal cost is (360-270)/(80-60) = 90/20 = $4.50.
- Output at 120: Total cost increased from 480 to 660 when quantity increased from 100 to 120, making marginal cost (660-480)/(120-100) = 180/20 = $9.00.
Marginal cost plays a vital role in economic decision-making processes. It helps businesses determine the optimal level of output to maximize profit and minimize cost. By analyzing how the marginal cost changes with each additional unit produced, companies can make informed choices regarding production levels.
Understanding marginal cost is crucial for businesses to stay competitive and efficient in the market. It allows them to assess the cost-effectiveness of scaling production or introducing new products. By calculating the marginal cost at different output levels, companies can optimize their operations and enhance overall profitability.
Moreover, marginal cost analysis aids in pricing strategies, as it provides insights into how changes in production volume impact costs. By setting prices based on marginal cost, businesses can ensure they cover expenses while remaining competitive in the market.
Overall, mastering the concept of marginal cost is essential for businesses to make strategic decisions that drive growth and sustainability. By utilizing this economic principle effectively, companies can achieve operational excellence and achieve long-term success.