The economic expense that must be specified to buy or maintain a service or a product is called cost . Marginal , on the other hand, is that which is on the margin, is scarce or is secondary.
In the economic field, it is called marginal cost to the increase of the production cost that is generated when increase the amount produced in one unit . It should be remembered that the cost of production refers to the money that must be disbursed to produce a service or a good.
The definition mentioned, in short, indicates that the marginal cost is the increase in the recorded cost when an additional unit of a certain good is produced. In other words, the marginal cost reflects the cost variation rate divided by the change in the level of production .
Suppose a company of sportswear produces 100 pants with a cost from 500 dollars . Yes, when producing 120 pants , the cost of production rises to $ 510 , he marginal cost it will be of 0.5 dollars :
Marginal cost = Cost variation / Production variation
Marginal cost = 10 dollars / 20 pants
Marginal cost = $ 0.5 per pair of pants
This means that, for produce an additional pair of pants , the company in question must increase your production cost by 0.5 dollars . If the marginal cost is $ 0.5 per pair of pants , and the company produces 20 more pants , your production cost will increase by 10 dollars . Instead, if it happens to produce 50 extra pants , the cost of production will increase by 25 dollars .
This concept belongs to the fields of economy and the finance , and is also known as cost marginal. From a strictly mathematical point of view, it can be said that the marginal cost should be expressed as the derived of the function of Total cost , taking as reference the quantity in which the production has been modified, which in the previous example is represented with two dozen extra pants.
It is understood by derived , in the field of mathematics, to the function that serves to measure the speed with which its own value changes, depending on the change that its independent variable goes through. Here are two more concepts:
* we say that a magnitude is function on the other when its value depends on that of the other (for example, the area of a square is a function of the extension of its sides, since they must be multiplied together to give this result);
* the independent variable of a function is that to which we can assign various values within a predefined set to modify the value of the dependent. In the previous case, we could say that the area is the dependent variable, and the sides are independent.
He Total cost , mentioned above, is the result of adding fixed costs and variables. The fixed ones are those that in the short term have no relation to the level of production of a company, but are stipulated in advance and made regardless of performance. The variables, meanwhile, do depend on the amount used of any variable factor, that is, on the resources and production capacity.
Returning to the marginal cost, it is said that its evolution should be represented with a curve shaped parable concave, that is, start decreasing and then increase (like a letter OR ), something that is justified by the law of diminishing returns , which indicates that: if a productive factor is added and the others remain constant, then the marginal increase decreases.
When observing the marginal cost curve, we note that at its minimum point is the amount of goods that the company must produce for the benefit be minimal