What is marginal cost?

Marginal cost is the cost of producing one more unit. That is, the variation experienced by the total cost in the face of a unit increase in production. It is a concept widely used in microeconomía, since it can be used to determine the quantity that the company should produce and its prices. Specifically, the minimum point of the marginal cost curve gives us the amount of goods that the company can produce at a minimum cost.

The marginal cost function, which is shaped like a concave parabola, responding to the law of diminishing marginal returns, is calculated by deriving the total cost function with respect to quantity. According to what has been pointed out so far, it is clear that for the calculation of the marginal cost, both the variable costs, which are those costs that are directly associated with production; Like the fixed costs, which are those costs inherent to the business, usually of a transversal nature that are not directly associated with production.

According to the above, a company that does not produce would have fixed costs, but not variable ones. Furthermore, it is important to bear in mind that the increase in production capacity will continue to have the same costs until the existing machinery or technology has exhausted its capacity to produce more. The same is true for physical space, for warehouses and dependencies or other requirements that increase depending on the growth of the company.

However, in these cases, it is not possible to use technology or real estate in a progressive or increasing way, but the only thing we can do is buy or rent certain machinery with certain capacity characteristics or rent an industrial warehouse, of measure X, which adapt to the current situation and the future of the company. However, as the company grows, it will be necessary to acquire or rent facilities or machinery that adjust to the new capacities existing at that moment, and to the potential ones, within a certain period of time.

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