Marginal likelihood of shutting down
Would you sell your products for less than they cost? Does this sound likely? Unless you had some very special reason for wanting to make (or, at least, to accept) a loss you will sell one more widget only if the revenue from that sale exceeds its cost to you. But what, exactly, is the cost?
Recall in the above example that you buy widgets for $1 each and sell them for $5 and you have fixed costs of $80 a day.
If you sell just one widget in a day, your total, average and marginal costs are $81. If you sell two widgets, total costs edge up $82, average total cost per widget slips to $42 and the marginal cost per item plummets to $1.
Marginal cost is the expense associated with selling one more item (the incremental ...
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