Wednesday, April 30, 2014

What is the meaning of "marginal" in economic terms?

The term "Marginal" in economics is used extremely often.
What it means, is essentially the next additional unit, product, person, or whatever
else you're associating the term with.


For example, say
you're reading an economics textbook and you come across the term "Marginal Profit."
What this means, is the profit you will gain from selling one additional unit of good,
after taking into account the marginal cost as
well.


Another example, "Marginal Utility" can be explained
as the additional utility a consumer receives from consuming one more additional unit of
good.


The most used terms would most likely be Marginal
cost, and marginal revenue. Businesses will place a lot of importance on these type of
terms because companies not only want to maximize and minimize profit, but they also
want to be efficient with what they do. If a marginal cost is increasing, while marginal
revenue is decreasing, it wouldn't make any sense to continue to produce past the point
where marginal cost is more than marginal revenue. Thus, by looking at the margins and
not just at the final big picture of revenue vs cost, companies are able to adjust more
quickly in the short run, and help their business reach optimal
efficiency.

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