{"id":40,"date":"2016-08-09T11:12:12","date_gmt":"2016-08-09T18:12:12","guid":{"rendered":"http:\/\/pages.palomar.edu\/jesteban\/?page_id=40"},"modified":"2016-12-02T11:35:13","modified_gmt":"2016-12-02T19:35:13","slug":"lesson-3","status":"publish","type":"page","link":"https:\/\/pages.palomar.edu\/jesteban\/lesson-3\/","title":{"rendered":"Lesson 3 – Marginal Cost"},"content":{"rendered":"

Now we get into the most interesting and important cost curve, the Marginal Cost Curve. <\/b>It is the additional cost of producing one more unit and later on will allow us to maximize profits.\u00a0 Yeahoo!\u00a0 I love profits $$$!\u00a0 As the production of pants increase, determining the additional cost of producing one more pant is crucial since that information will help us decide whether to produce or not that particular pair.\u00a0 In order to calculate the\u00a0 Marginal Cost <\/b>we calculate the difference in Total Cost<\/b> between the previous unit and the current unit.\u00a0 The table below calculates the Marginal Cost <\/b>for Funky Pants:<\/p>\n\n\n\n\n\t\n\n\t
Quantity
\nFunky Pants<\/th>		Total Cost<\/th>Marginal Cost<\/th>\n<\/tr>\n<\/thead>\n
\"mcgraphbraket-1\"<\/td>\"mcgraphbraket-2\"<\/td>\"mcgraphbraket-3\"<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

 <\/p>\n

The calculations start with the first unit, as the cost went from $36 to $44, the marginal cost of producing the first unit is $8 ($44-$36), for the second unit the cost is $4, and so on.\u00a0 The arrows illustrate that the marginal cost is the additional cost of producing one more unit.\u00a0 Suppose someone offers you $25 for the eight pair of pants, would you sell it at $25?\u00a0 How much did it cost you to sew that particular pair? ($17, so sell!)\u00a0 The graph below shows why the Marginal Cost<\/b> is more challenging to understand, notice that the coordinates are not exactly at 1,2,3..units, they are graphed at 0.5,1.5,2.5, etc.\u00a0 This is because the MC starts increasing as you start producing the units.\u00a0 In this case imagine you got your cloth and you add a zipper, costs have increased yet you are not finished with the pair of pants.\u00a0 In order to reflect that graphically economists graph the MC at mid point to account for the transition.\u00a0 This is a bit confusing yet useful in drawing accurate graphs and arriving at accurate conclusions!<\/p>\n

\"margcostgraph\"<\/a><\/p>\n

As mentioned above graphing the marginal cost accurately is very important because this will help us determine important stages in production costs:<\/p>\n