The economic expense that must be specified to buy or maintain a service or a product is called cost. Marginal, for its part, is what is on the margin, is scarce or is secondary.
In the economic sphere, it is called marginal cost to the increase of the production cost what is generated when increases the quantity produced by one unit. It should be remembered that the cost of production refers to the money that must be disbursed to produce a service or a good.
Ultimately, the aforementioned definition indicates that marginal cost is the increase in cost recorded when an additional unit of a certain good is produced. In other words, marginal cost reflects the rate of cost change divided by the change in the level of production.
Suppose a company of sportswear produces 100 pants with a cost from 500 dollars. Yes, when producing 120 pants, the cost of production rises to $ 510, the marginal cost it will be of $ 0.5:
Marginal cost = Variation in cost / Variation in production
Marginal cost = $ 10/20 pants
Marginal cost = $ 0.5 per pair of pants
This means that, for produce an extra pair of pants, the company in question must increase your production cost by $ 0.5. If the marginal cost is $ 0.5 per pair of pants, and the company produces 20 more pants, your production cost will increase by 10 dollars. On the other hand, if it happens to produce 50 extra pants, the production cost will increase by 25 dollars.
This concept belongs to the fields of economy and the finance, and is also known as cost marginal. From a strictly mathematical point of view, it can be said that the marginal cost should be expressed as the derivative of the function of Total cost, taking as a reference the quantity in which the production has been modified, which in the previous example is represented with two dozen extra pants.
It is understood by derivative, in the field of mathematics, to the function that serves to measure the speed with which its own value changes, depending on the change that its independent variable goes through. Here two more concepts are added:
* we say that a magnitude is function on the other when its value depends on that of the other (for example, the area of a square is a function of the extension of its sides, since they must be multiplied together to give this result);
* the independent variable of a function is one to which we can assign various values within a predefined set to modify the value of the dependent. In the previous case, we could say that the area is the dependent variable, and the sides are the independent ones.
The Total cost, mentioned above, is the result of adding the fixed and variable costs. The fixed are those that in the short term have no relation to the level of production of a company, but are stipulated in advance and are carried out regardless of performance. The variables, on the other hand, do depend on the amount that is used of any variable factor, that is, on the resources and the production capacity.
Returning to marginal cost, it is said that its evolution must be represented by a curve shaped like parable concave, that is, it starts decreasing and then increases (like a letter OR), something that is justified by the law of diminishing returns, which indicates that: if a productive factor is added and the others remain constant, then the marginal increase decreases.
By observing the marginal cost curve, we note that at its minimum point is the amount of goods that the company must produce for the benefit be minimal.