It's financially wise for businesses to make sure that production costs do not outweigh profit.
Marginal cost is a calculation of how much the total cost of production increases as the amount of units produced increases. Companies often use capital (financial assets) to finance production. It's financially wise for businesses to make sure that production costs do not outweigh profit, or the company's capital will be depleted, and the production process will cease being profitable.
Instructions
1. Calculate the change in the amount of units produced. For instance, if a company produces 50,000 pens one year and 75,000 pens the following year, the change in production would be 25,000 units.
2. Calculate the change in production costs from one time period to the next. For example, if the company used $30,000 of its capital to produce 50,000 pens one year and $40,000 of capital to produce 75,000 pens the next year, the change in cost would be $10,000.
3. Divide the change in production costs (your answer from step 2) by the change in the amount of units produced (your answer from step 1) to find the marginal cost of capital. In this example, 10,000 divided by 25,000 would be 0.4, or 40 cents.
