What is the significance of marginal costs in business?

[King Belieal]

Marginal costs is one concept that is highly considered in business setup and running. It is the additional costs incurred to run production for an additional one unit.

How is the concept of marginal costs applicable practically in the world of business?

 

[kit_hung]

Marginal cost is the cost of adding one more unit of a product or service. For businesses, this concept helps determine whether increasing production is profitable or a loss. For example, if you have a juice factory, if you add one more carton, you must know the cost of extra materials, electricity, and labor. If the selling price is above that marginal cost, you make a profit, but if it is below that, you make a loss. This knowledge helps you set prices well and also determine the level of production.