Marginal Analysis Approach on Cost, Revenue, and ProfitMarginal Analysis or the analysis on additional revenue (MR) and the additional cost (MC) incurred from the production of an additional unit of output (Change in quantity) shall be compared to arrive at maximum profit.Marginal Revenue (MR) is the additional revenue from an additional unit of outputMarginal Cost (MC) is the additional cost in producing one unit of additional output.MC > MRMR = MCAverage Cost

AC = Average CostX = units of productsTC(x) = total cost of producing x units of productCharacteristics of a total cost function and x1. Total Cost Function TC(x) and x should always have positive values.2. Total Cost is zero or positive (TC > 0) when no units produced.3. Total Cost increases as x increases so that TC (x) is always positive [TC (x) > 0]

22Example: Find the average cost if the total cost function is TC = x + 20x + 400

Find the average cost at x = 10 = = 70

Marginal CostMarginal Cost defined as the rate increase in total cost with respect to the rate increase in output. That is, if output is increased by an amount of x from a certain level x and if the corresponding increased in cost is y, then the average increased in cost per extra item produced is .The marginal cost is:

thMarginal Cost is the derivative of the total cost function with respect to the quantity produced.MC = TC (x) = cost of producing the ( x + 1 ) unit

22Example: Find the marginal cost of the total cost function TC = x + 20x + 400 MC = TC (x) = x + 20x + 400 MC = 2x + 20 Find the marginal Cost at x = 10

2 MC = TC (x) = x + 20x + 400 MC = 2 (10) + 20 MC = 40