Marginal cost: what is meaning of term "one unit"?

HB09

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What does "one unit" Mean?
Maarginal cost is "The cost that results from a one unit change in the production rate"

 
I'm guessing that is not QUITE what the definition says. It should be "one unit of production", not "one unit of production rate"

Simplest possible model including Fixed an Marginal costs. Cost(p) = F + M * p

Here:
F = Fixed Costs
M = Marginal Cost Rate per Production Unit
p = Production Units
Cost(p) = Total Cost as a function of Production Units.

If you produce one unit, Cost(1) = F + M
If you produce two units, Cost(2) = F + M*2
If you produce three units, Cost(3) = F + M*3

Cost(2) - Cost(1) = M
Cost(3) - Cost(2) = M
This is Marginal Expenses. Increase one unit of production and it costs you M more - every time.

There are more sophisticated models. :)
 
What does "one unit" Mean?
It refers to one item. If you make toasters, then one unit is a toaster. If you make socks, then one unit is a pair of socks.

If you google a phrase like, "define one unit in marginal cost", you'll get lots of examples, like this page. :cool:
 
NO, I read it fine. I just can't review what I read while I'm in the response box and I seem to have forgotten what I read. Let's try again.

Marginal cost is "The cost that results from a one unit change in the production rate" -- This is incorrect.

Marginal cost is "The cost that results from a one unit change in production" -- This is correct.
 
NO, I read it fine. I just can't review what I read while I'm in the response box and I seem to have forgotten what I read.
As long as you're not editing your own post in some thread, you can scroll down (i.e., below the composition field), to review existing posts in that thread.

If you are editing your own post, then the other posts do not appear below the composition field. In this case, you can scroll up and right-click on the thread's title in the breadcrumb trail, to open the thread in another tab for review.


Let's try again.

Marginal cost is "The cost that results from a one unit change in the production rate" -- This is incorrect.

Marginal cost is "The cost that results from a one unit change in production" -- This is correct.
I may be missing something subtle.

I produce 10,000 units per day, and my cost is $500 per day.

I change my production rate to 10,001 units per day, and my cost changes to $510 per day.

Is the marginal cost $10 ?
 
If the same amount is produced each day, is that a production rate?

EG: 10001 units/day
tkhunny - 10001 is the production AMOUNT, not the rate.

It depends on the total span of time under consideration.

If only one day is being considered - then the rate could be (10001/24 =) 417 units/hr. (or 7 units/min) and 10001 would be the production amount.
 
"Rate" needs a "per".
"Amount" is a number of distinct units.

R = Production Rate = 12 Units / hour
H = Hours Available = 7.5 hrs
A = R * H = Production Amount = 90.00 Units

If we increase the Production RATE by 1 Unit / hour <= Notice how I did not say "one unit".

Production Amount = 7.5 hrs * 13 / hour = 97.50 -- We cannot measure marginal expenses based on the increase of 7.50 units. We need an increase of ONE Production Unit.

If you wish to define the Rate as 10,000 Units / day, that is fine, but increasing this to 10,001 per day is not helpful if you are studying production amounts on a weekly basis.

One must be consistent in the definition. Marginal Expenses are measured on the increase of One Production Unit - with reference to the accounting period that is also consistently defined.
 
Thank you, Subhotosh and tkhunny. I think I now recognize the ambiguities caused, by not distinguishing between production and production rate, when defining marginal cost.

Denis, got any spare Tylenol?
 
Admittedly, it is quite difficult to see any difference when your RATE is given "per day" and your accounting period is ALSO "day". Pretty much the same if those two measures match up. ANYTHING else, though, and it is much more clear.
 
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