The term marginal benefit vs marginal cost is widely used by many companies across the globe. Both these terms help companies to make smarter production decisions based. But do you know what is marginal analysis? How to calculate it by using the marginal benefit calculator? If not, then you have come to the right place! In today’s article, we will study the main difference between marginal social benefit vs marginal social cost in-depth. Here, I have given a detailed explanation of both the terms along with some examples. So, without wasting much time, let’s first understand the terms marginal benefit vs marginal cost in-depth.
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Marginal Benefit Vs Marginal Cost
The concept of marginal cost vs marginal benefit is very easy to understand and learn. Here, I have noted down some points that will help you to differentiate between both these terms.
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In short, you can keep consuming as long as marginal benefit exceeds marginal cost. But when marginal benefit = marginal cost, it’s time to stop! Now, you have reached optimal consumption.
Below, I have attached the marginal benefit vs marginal cost graph for reference.
Marginal benefit and marginal cost graph
Marginal Benefit Vs Marginal Cost Examples
Are you still facing difficulty in understanding marginal benefit vs marginal cost definition? Do not worry! Here, I have listed down some marginal cost vs marginal benefit examples that will clear all your doubts!
Example 1 (For Marginal Benefit)
Imagine that a lady decides to purchase a piece of jewelry for herself, for example, a ring. She visits a nearby shop and chooses a perfect ring. The lady spends $150 on the ring. But later on, spots another beautiful ring. As she doesn’t need two rings, but still wishes to spend another $150 on the second ring. However, she might even purchase the second ring at $100. Thus, her marginal benefit reduces from $150 to $100 from the first ring to the second ring.
Note: This decreasing appeal for additional consumption of goods is known as diminishing marginal utility.
As you have now understood marginal benefit examples, let’s check out examples for marginal cost.
Example 2 (For Marginal Cost)
For this, let’s consider a shoe manufacturing company. In this company, each shoe needs at least $5 worth of leather, rubber, thread, and some other materials to create it. A factory is also needed for making the shoes. It might need roughly need $1000 for the factory.
So, if the company makes 100 shoes at a time, then each shoe costs $15 to make, i.e. $1000 ÷ 100 + $5. Once the workers learn the shoe-making technique, they’ll make more shoes in less time. Therefore, when the cost of the factory is distributed over more shoes, the price per unit, cost of materials falls down. Due to all these factors, the marginal cost also decreases.
Marginal Benefit Vs Marginal Utility
Until now, we have studied the marginal benefit vs marginal cost table in detail. Let’s now compare the term marginal utility with marginal benefit.
We know that marginal benefit describes what consumers are willing to pay for purchasing one more piece of good. On the other hand, marginal utility describes the additional benefit that a consumer gains by purchasing additional goods or services.
Types Of Marginal Benefit And Marginal Cost
There are several types of marginal benefits and costs, some of them are listed down for you.
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Marginal Benefit
- Positive Benefit: Positive benefit occurs when a consumer responds positively while purchasing additional goods.
- Negative Benefit: Negative benefit occurs when a consumer has purchased too many same products.
- Zero Benefit: Zero benefits occur when a consumer responds neither positively nor negatively while purchasing additional goods.
Marginal Cost
- Unit Costs: Unit costs are generally individual unit costs that create an overall increment in cost.
- Batch Costs: Batch costs mostly depend on the number of production batches instead of individual units.
- Product Costs: Product costs mainly focus only on costs and are not easily affected by batch or unit amounts.
- Customer Costs: Customer costs might include customer service or related costs.
- Organization Costs: Organization costs is simply an account for general business costs associated with operations.
FAQ
How Do You Explain Marginal Benefit?
Marginal benefits are the maximum amount a consumer will pay for an additional good or service. A marginal benefit is also the additional satisfaction that a consumer receives when the additional good or service is purchased. The marginal benefit generally decreases as consumption increases.
What Do You Mean By Marginal Cost?
The marginal cost refers to the increase in production costs generated by the production of additional product units. It is also known as the marginal cost of production. Calculating the marginal cost allows companies to see how volume output influences cost and hence, ultimately, profits.
What Is Another Name For Marginal Cost?
incremental cost
Marginal cost refers to the increase or decrease in the cost of producing one more unit or serving one more customer. It is also known as incremental cost.
How Do You Calculate The Marginal Cost?
Marginal cost represents the incremental costs incurred when producing additional units of a good or service. It is calculated by taking the total change in the cost of producing more goods and dividing that by the change in the number of goods produced.
What Is Difference Between Marginal Cost And Marginal Benefit?
Marginal benefit is the maximum amount of money a consumer is willing to pay for an additional good or service. The consumer’s satisfaction tends to decrease as consumption increases. Marginal cost is the change in cost when an additional unit of a good or service is produced.
What Does It Mean When Marginal Benefit Is Greater Than Marginal Cost?
If marginal benefit exceeds marginal cost, resources use will be more efficiently if the quantity is increased. If marginal cost exceeds marginal benefit, resource use will be more efficiently if the quantity is increased. Figure 6.1 shows the efficient quantity.
What Is An Example Of Marginal Benefit Vs Marginal Cost?
For example, a marginal cost would be how much it would cost a company to produce 1 more of a good. Their marginal benefit would be the extra revenue they get from producing that one extra good.
Conclusion
Every manufacturing company must know the actual difference between marginal benefit vs marginal cost while producing goods. In my above article, I have briefly discussed the terms marginal benefit (MB) and marginal cost (MC). In simple words, it means either producing or consuming goods until the two values are equal to each other. You can check out the marginal cost vs marginal benefit graph for reference. Here, when the MC is more than MB, the consumers will not be willing to pay the cost. Thus, that’s all you must know about marginal benefit vs marginal cost!