What is the relationship between marginal costs and marginal income?

Limit costs and marginal income are economic measurements used to determine the effects of production of another unit in the production system. Companies usually seek to achieve a production balance where these measurements are the same. At this point, the company maximizes its profit. The relationship between these two economic concepts is important because the imbalance on both sides can lead to ineffectiveness of production. When an imbalance occurs, societies will experience scale saving. For example, 50 units cost $ 100 (USD). Increasing costs to $ 110 from production of 101 units indicates limit costs of $ 10 for $ 101. Each additional unit produced will pass through this measurement to determine the limit costs of additional products. Companies may compare the marginal costs and increases of marginal income in the framework of the cost and benefits analysis.

The marginal income formula is slightly different from the calculation of the marginal cost. For example, the company can sell 10 units for $ 15. Sale 11 units will reduce the sale price to $ 14. BoundaryJMY is $ 150 ($ 10 x 15), deducted from $ 154 ($ 11 x 14). Therefore, marginal income for this product is $ 4.

Comparison between marginal costs and marginal income data in this example is $ 10 in costs compared to $ 4 in income. The company loses dollars of $ 6 by increasing its production by only one unit. This creates a balance that is unsustainable for long -term production operations. Companies will therefore have to find another way to increase marginal income when production increases. If you want to find out balance, companies test more information about increasing production to maximize profit.

short -term and long therm limit costs and calculations of marginal income are different. Fixed costs are included in short -term calculations. In long -term calculations, however, these measurements do not affect fixed costs. Economists are considering long -term sunk costs; This means that the company does notIt can restore costs regardless of sales profit.

Savings of the extent are another factor in this relationship from production estimation. This economic theory states that companies begin to cause economic disadvantages to increase production. One of the reasons this comes from limited consumer demand. Consumers often have a firm income from an economic point of view. It must be decided to maximize the usefulness of buying goods that result in the greatest value of the money spent. Excessive goods production results in a high supply and transfer costs without increased consumer demand.