Home Forums Principles of Economics Marginal Cost

  • Marginal Cost

    Posted by Zarak on December 31, 2022 at 20:52

    So I’m having a hard time grasping this concept I think. So if I now have capital and produce whatever it is I’m producing, I am now doing it at a lower marginal cost than before I had the capital. Is this because I spend less time per unit?

    Zarak replied 1 week, 5 days ago 2 Members · 8 Replies
  • 8 Replies
  • Francisco

    Member
    January 2, 2023 at 17:53

    I think decreasing marginal cost applies when with the (new) capital you invest in new technology and/ or new knowledge of the human factor (abilities); if you only expand the production using same technology & human you don’t have decrease marginal cost and instead, you can have “increased” m.c. because you add more complexity needing more layers of management & control

    • Zarak

      Member
      January 9, 2023 at 07:20

      Sorry for the late reply, I barely even saw your message. Thank you for a response and explanation! I understand it now with your words. Basically its a decrease if I invest in new, and an increase if I stay with the same?

      • Francisco

        Member
        January 12, 2023 at 22:34

        If you continue producing “K” ouput with the same “X” input as before you don’t have dmc; with the same “X” input you must now produce “K+n” output to have dmc

        • This reply was modified 2 weeks, 3 days ago by  Francisco.
        • Zarak

          Member
          January 16, 2023 at 01:22

          So I have to produce what I usually produce plus something new

          • Francisco

            Member
            January 16, 2023 at 14:18

            Exactly; also you can produce the same output, but wit new qualities (realy you are not producing the “same”output, but another one, diferenciating from competition), etc.

            • Zarak

              Member
              January 16, 2023 at 15:17

              Like instead of crafting just a mallet, I now put spikes on it

              But also if I craft a mallet and a sword? Would both of these examples qualify or just the former?

            • Francisco

              Member
              January 16, 2023 at 16:42

              For DMC the important thing is that the TC/Q ratio becomes smaller as time goes by (CT= Total Cost & Q= Quantity produced)

              There are several hypotheses (almost infite); few examples:

              1- With the new Capital you buy more advanced machines and produce more outputs (with the same inputs: raw material input, human work, energy, etc.);

              – In same cases this can also be achieved with organizational studies of efficiency and better training of its workers that allows optimizing the Processes;

              2- With the new Capital you offer a new service without more inputs (eg airlines offering VIP lounges to more customers);

              3- etc., etc., etc.

              Don’t confuse with increasing marginal profitability, an example:

              – With the
              new Capital, it starts a new (strategic) marketing campaign and differentiates
              its product from the competition (eg Coca Cola, Apple), and this allows you to increase the price of the same product.

              These subjects are studied in Microeconomics and what I wrote are simplifications of reality;

              What is important: to have DMC the TC/Q ratio must become smaller as time goes by

            • Zarak

              Member
              January 18, 2023 at 04:46

              Your examples made it a lot more clear🙏🏾. “Increase the price of the same product.” Producing more outputs with the same inputs