Answer to Question #236194 in Economics for Genine Kriegler

Question

Explain the importance of marginal cost and average cost to managers.

Answer 1

Economic decisions on the conduct of business activities should be made after marginal analysis, which is based on marginal comparisons. That is, comparison of alternative solutions and determination of their effectiveness occurs by assessing the increment of costs. Average and marginal costs are interrelated, and the change in one in relation to the other is the reason for adjusting the volume of output. For example, if marginal costs are less than average ones, then it makes sense to increase output. It is worth stopping the increase in production when the marginal costs are above average.