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Answer:: Q:NO:01: Differentiate Marginal Cost and Marginal Revenue

Marginal cost is the change in total cost from producing one additional unit of output. Marginal revenue is the change in total revenue from selling one additional unit of output. Marginal cost is used to determine the point of diminishing or negative returns from production while marginal revenue is used to analyze consumer demand and set profitable prices. Opportunity cost refers to the next best alternative forgone in making a decision, such as the profit from the second best investment option. It is a relevant cost to consider while sunk costs from past decisions are irrelevant since they cannot be changed.

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42 views

Answer:: Q:NO:01: Differentiate Marginal Cost and Marginal Revenue

Marginal cost is the change in total cost from producing one additional unit of output. Marginal revenue is the change in total revenue from selling one additional unit of output. Marginal cost is used to determine the point of diminishing or negative returns from production while marginal revenue is used to analyze consumer demand and set profitable prices. Opportunity cost refers to the next best alternative forgone in making a decision, such as the profit from the second best investment option. It is a relevant cost to consider while sunk costs from past decisions are irrelevant since they cannot be changed.

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Q:NO:01: Differentiate Marginal cost and Marginal revenue .

Answer: Marginal Cost


 Marginal cost is the additional cost you incur to produce one more unit.
 The marginal cost of production is the change in cost that comes from
making more of something.
 The purpose of analyzing marginal cost is to determine at what point
an organization can achieve economies of scale.
 The marginal cost, which is directly felt by the producer, is the change in
cost when an additional unit of a good or service is produced.
 A marginal benefit usually declines as a consumer decides to
consume more of a single good.
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
 Marginal Cost=
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
 For example, imagine that a consumer decides she needs a new
piece of jewelry for her right hand, and she heads to the mall to
purchase a ring. She spends $100 for the perfect ring, and then she
spots another. Since she does not need two rings, she would be
unwilling to spend another $100 on a second one. She might,
however, be convinced to purchase that second ring at $50.
Therefore, her marginal benefit reduces from $100 to $50 from the
first to the second good.
 Marginal Revenue
 Margin revenue is a financial ratio that calculates the
change in overall income resulting from the sale of one
additional product or unit.
 You can think of it like the additional money collected or
income earned from the last unit sold.
 This is a microeconomic term, but it also has many
financial and managerial accounting applications.
 Management uses marginal revenue to analyze
consumer demand, set product prices, and plan
production schedules.
 Understand these three key concepts is crucial for any
manufacturer.
 Misjudging customer demand can lead to product
shortages resulting in lost sales or it can lead to
production overages resulting in excess manufacturing
costs.
 Differentiate Sunk cost and opportunity cost
 Costs: Resources sacrificed to achieve a specific objective, such as
manufacturing a particular product, or providing a client a particular
service.
 Sunk costs: These are costs that were incurred in the
past. Sunk costs are irrelevant for decisions, because
they cannot be changed.

 Sunk costs are costs that were incurred in the past. Committed
costs are costs that will occur in the future, but that cannot be
changed.
 As a practical matter, sunk costs and committed costs are equivalent
with respect to their decision-relevance; neither is relevant with
respect to any decision, because neither can be changed.
 Sometimes, accountants use the term “sunk costs” to encompass
committed costs as well.
 For example, if you have purchased a nonrefundable
ticket to a concert, and you are feeling ill, you might
attend the concert anyway because you do not want
the ticket to go to waste. However, the money spent to
buy the ticket is sunk, and the cost of the ticket is
entirely irrelevant, whether it cost $5 or $100. The
only relevant consideration is whether you would
derive more pleasure from attending the concert or
staying home on the evening of the concert.
Opportunity Cost:
 As noted above, opportunity cost is the profit
foregone by selecting one alternative over another.
 Opportunity costs are relevant for many decisions, but
are sometimes difficult to identify and quantify, and
are seldom recorded in an organization’s accounting
system.
 The term opportunity cost is sometimes
ambiguous in the following sense.
 Sometimes it is used to refer to the profit
foregone from the next best alternative,
 and sometimes it is used to refer to
the difference between the profit from the
action taken and the profit foregone from the
next best alternative.
 Example: Tina has $5,000 to invest. She can invest
the $5,000 in a certificate of deposit that earns 5%
annually, for a first-year return of $250. Alternatively,
she can pay off an auto loan on her car, which carries
an interest rate of 7%. If she pays off the auto loan,
she will save $350 (7% of $5,000) in interest expense.
(In this context, a dollar saved is as good as a dollar
earned.)

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