Marginal Revenue and Marginal Cost Practice Question

From Mike Moffatt, former About.com Guide

Part 3: Marginal Revenue (MR)

The Dictionary of Economics Terms defines marginal cost as:

Marginal costs are the costs a company incurs in producing one additional unit of a good.

In this question, we want to know what the additional costs to the firm are when it produces 2 goods instead of 1 or 5 goods instead of 4.

Since we have the figures for total costs, we can easily calculate the marginal cost from producing 2 goods instead of 1. It is simply:

MC(2nd good) = TC(2 goods) - TC(1 good)

Here the total costs from producing 2 goods is $12 and the total costs from producing only one good is $10. Thus the marginal cost of the second good is $2.

When you've done this for every quantity level, your chart should look similar to the one below.

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• Marginal Revenue and Marginal Cost Practice Question
• Marginal Revenue and Marginal Cost Practice Question - Part 1
• Marginal Revenue and Marginal Cost Practice Question - Part 2
• Marginal Revenue and Marginal Cost Practice Question - Part 3
• Marginal Revenue and Marginal Cost Practice Question - Part 4
• Marginal Revenue and Marginal Cost Practice Question - Part 5

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