Marginal Cost Analysis

Marginal Cost Analysis is a financial concept that examines the additional costs incurred when producing one more unit of a good or service. It helps businesses determine if the benefit gained from producing an extra unit outweighs the cost. For example, if a factory considers making one more toy, Marginal Cost looks at how much extra materials and labor it will need. If the selling price of that toy is higher than the Marginal Cost, it’s a good decision to produce it. This analysis aids in making informed production and pricing decisions.