Marginal Cost

Daily Financial Literacy

[As a chestnut]

Orange is the driver and owner of a courier truck from Xi'an to Beijing, and the fixed cost of a run is 5,000 yuan.

- For each additional courier, the car just gets a little fuller, and Orange doesn't need to add extra costs.

-The more couriers in the car, the more money Orange makes.

- For each additional delivery, the additional expense required is 0, and the marginal cost is 0.

- Orange is running a fabric factory, and spends 1 million dollars to build the factory, 1 million dollars to buy weaving machines, and 1 million dollars to hire 10 workers/year, and the price of raw materials required for each piece of fabric is 10 dollars. If Orange produces only 1 cloth this year, then Orange's cost for this year is $3 million + $10.

- If Orange produces 2 cloths this year, then Orange's cost this year is 3 million + $20.

- If Orange produces 30,000 cloths this year, then Orange's cost this year is $3 million + $300,000 dollars.

For every extra cloth produced, Orange needs to pay $10 more in cost s. This $10 is the marginal cost of producing the cloth. So the more you produce, the more money you make.

[Marginal cost]

- refers to the additional cost of each additional product produced (or purchased).

- The extra cost of doing something for each additional output you produce.

-Use marginal cost

Make your marginal cost 0

Economies of scale, lower marginal cost

Try to choose ways of making money that have a marginal cost of 0