So why it is a ration decision to make sure the marginal benefits outweighs the marginal costs? (Be detailed, you can use examples.)

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Business

Angeline Wells

23 February, 00:24

So why it is a ration decision to make sure the marginal benefits outweighs the marginal costs? (Be detailed, you can use examples.)

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Answers (1)

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Copeland · Answer 1

For the business to make profits

Explanation:

Marginals revenue is the additional income realized from the sale of an extra unit. It is the revenue that a firm will gain by selling one more unit of a product or service.

Marginal cost is the expense incurred in the production of one more unit of a product. A business compares marginal revenue to marginal cost to decide if it will cease or continue with production and selling activities.

For a business to continue selling and make profits, marginal revenue must be greater than the marginal cost. In other words, the revenue realized by selling one extra unit must exceed the cost of producing that item. Selling one more unit when the marginal cost is more than the marginal revenue will result in a loss.

If the marginal revenue from a computer is $40 and the marginal cost is $50, selling on extra computer results in a loss of $10. But if the marginal revenue from the same computer is $60, the sale on one more unit will be a gain of $10.