Marginal cost is the change in total cost associated with a one-unit increase in production.
What is marginal cost?
- In managerial accounting, the idea of marginal cost is crucial because it may be used to maximize production through economies of scale within an organization.
- By producing at the point where marginal cost (MC) equals marginal revenue, a business can optimize its earnings (MR).
- Because fixed costs are fixed regardless of output levels, larger production spreads the total fixed cost over more units, resulting in a lower fixed cost per unit.
- Production levels affect variable costs, so increasing the number of units will increase those costs.
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