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.
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.
- 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.
- 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.
Why Marginal Benefit Equals Marginal Cost?
The marginal benefit from good is equal to the marginal cost of producing it due to the efficient quantity of the good.
What Is An Example Of A Marginal Benefit?
For example, a lady is willing to pay $150 for a ring. Therefore, the marginal benefit of purchasing the ring is $150. Later on, the lady feels pleased to purchase an additional ring at the same price i.e only at the price of $100. Thus, her marginal benefit reduces from $150 to $100 from the first ring to the second ring.
Why Is It Important To Compare Marginal Costs And Marginal Benefits?
It is important to compare marginal costs and marginal benefits because it helps us to determine at what point an organization can achieve economies of scale.
How Do You Calculate Marginal Benefit And Marginal Cost?
You can calculate marginal benefit and cost by using this marginal benefit vs marginal cost calculator.
Marginal Benefit (MB)= Change in Total Benefit/ change in Quantity
Marginal Cost (MC) = Change in Total Cost/ Change in Quantity
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!