Definitive Business Plan, Second Edition, The

Marginal likelihood of shutting down?

Would you sell your product for less than it cost? Does this sound likely? Obviously, you should sell one more coconut only if the revenue from that sale exceeds its cost to you. But what, exactly, is the cost?

Think about the problem. Let's talk coconuts again. Recall that you buy coconuts for one peso each and sell them for five pesos and you have operating expenditure of 80 pesos a day for renting the stall.

If you sell just one coconut in a day, your total, average and marginal costs were 81 pesos. If you sell two nuts, total costs edge up to 82 pesos, average total cost per nut slips to 42 pesos and marginal cost per husk plummets to one peso.

Marginal cost is the expense associated with selling one ...