Marginal Cost vs. Marginal Revenue: What’s the Difference?
The main difference between Marginal Cost and Marginal Revenue is that marginal cost refers to the additional cost incurred by producing one more unit of a product, while marginal revenue refers to the additional revenue generated by selling one more unit of a product.
Before we move to more differences, let’s first understand Marginal Cost and Marginal Revenue:
- Marginal Cost: Marginal cost refers to the additional cost incurred by a business or organization when producing one additional unit of a product or service.
- Marginal Revenue: Marginal revenue refers to the additional revenue generated by selling one additional unit of a product or service.
Now, let’s get to Marginal Cost vs Marginal Revenue:
Major differences between Marginal Cost and Marginal Revenue
| Marginal Cost | Marginal Revenue |
|---|---|
| Marginal cost is calculated by dividing the change in total cost by the change in quantity. | Marginal revenue is calculated by dividing the change in total revenue by the change in quantity. |
| The marginal cost curve is typically upward-sloping due to diminishing marginal returns. | The marginal revenue curve is typically downward-sloping due to the law of demand. |
| Marginal cost is influenced by the cost of production, the quantity of units produced, and the level of fixed costs. | Marginal revenue is influenced by the price of the product or service and the level of demand. |
| Marginal cost is typically upward sloping, meaning that it increases as more units are produced. | Marginal revenue is typically downward sloping, meaning that it decreases as more units are sold. |
| Marginal cost is important for determining the minimum price at which a product or service can be sold without incurring losses. | Marginal revenue is important for determining the optimal price at which to sell the product or service to maximize profits. |
So, these are the main differences between the entities.
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