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Marginal cost

Marginal cost is an indicator that is calculated by dividing the change in cost per unit of production by the change in the number of manufactured products.

Marginal costs play an important role in the analysis of the feasibility of increasing output or the volume of services provided:

  • If this indicator is less than the price currently set, then the expansion of production is economically profitable. This is due to the fact that the projected income completely covers the cost of additional products, which entails an increase in profit.
  • If marginal costs are greater than the current price, expansion of production is economically disadvantageous. In this case, the costs will exceed revenues, and therefore the company will suffer a loss.
There are situations when the study of marginal costs in a particular case is significantly complicated due to the influence of other variables, which also affect the final financial result. In such cases, specially developed industry programs are used that calculate marginal costs not only according to the basic formula, but also taking into account external factors.