Home Forums Principles of Economics Marginal Cost Reply To: Marginal Cost

  • Francisco

    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