Talk:Marginal cost

Jargon needs explaining

If the jargon can't be explained, consider adding a you-need-to-have-a-background-in-[blank] very much like the prisoner's dilemma page.

Not entirely sure that this issue has been addressed already as the prisoner's dilemma doesn't currently have the background statement in it ... Cheers.. Risk Engineer (talk) 20:10, 16 December 2018 (UTC)

Can anyone solve this, read this topic and discuss it......

"Other things being equal, the fixed overhead will remain fixed in total during changes in production, and the rate per unit will constantly vary; whereas the variable overhead remain constant per unit of production, and vary in total"

Definition

There is a problem with your definition here. First, it is stated that the marginal cost is the price of producing one extra unit. So the marginal cost should be expressed in dollars (or whatever currency). But then it is stated that the marginal cost is the instantaneous rate of change of the cost or the derivative which then would be in dollars per produced unit. Secondly, even if you get rid of this unit problem, you still are faced with another issue: the cost of producing one extra unit should be $MC(Q)=C(Q+1)-C(Q)$ but by saying that $MC(Q)=C'(Q)$ you actually only get the linear approximation for $C(Q+1)-C(Q)$. What is actually done is to say that the marginal cost is the linear approximation to produce one extra unit. That number corresponds to the number that you get by computing the derivative $C'(Q)={\frac {dC}{dQ}}(Q)$ but the units are different because instead of looking at the slope (which is what the derivative is) you use that slope to ask how much higher or lower is roughly the cost one unit further, if you want in equation you would get something like ${\frac {C(Q+1)-C(Q)}{1}}\approx C'(Q)$ and hence $C(Q+1)-C(Q)\approx MC(Q)$. I'm looking for a precise reference to quote all this, but we should watch out with all this, right now the way this page explains this concept is really poor, we could explain this much more precisely mathematically. 313.kohler (talk) 05:31, 4 February 2011 (UTC)

It's wrong to say that "it is stated that the marginal cost is the price of producing one extra unit. So the marginal cost should be expressed in dollars (or whatever currency)." If you count "produced units" as a unit of measure, the correct unit for "price for one unit" is dollars per produced unit; then multiplying by produced units gives a cost in dollars. I guess most would not use a unit of measure for "produced units", though mathematically you can choose either way.

Then, you discuss the difference between the derivative $MC(Q)=C'(Q)$ and $MC(Q)=C(Q+1)-C(Q)$, which is a Finite difference. Mathematically, those two concepts are related by integrals: $C(Q+1)-C(Q)=\int _{Q}^{Q+1}C'(Q)dQ$. I don't know in which of the two ways marginal cost is actually defined, I'm not an economist, but at least the math is clear.

As a consequence, writing "In practice the above definition of marginal cost as the change in total cost as a result of an increase in output of one unit is inconsistent with the differential definition of marginal cost for virtually all non-linear functions.", as the page does currently, is weird—if you want to describe the difference between derivatives and differences, you need to use integrals, or reinvent a bad copy of them. --Blaisorblade (talk) 15:58, 8 May 2017 (UTC)

I have been thinking about this too. Added a little explanation after the first paragraph explaining why defined marginal cost is not calculated marginal cost. It's all about tangents. User:nath9091 18.11, 23 May 2011 (BST) —Preceding undated comment added 17:12, 23 May 2011 (UTC).

Deleted paragraph without carrying out sound research on sources

Creto8 was personally unsure of the source and deleted an entire paragraph on Decisions taken based on marginal costs. 1. A sound search in internet would have demonstrated that the source is indeed reliable, as it is been considered in this way by well established institutions as US Labor Office (http://www.bls.gov/opub/uscs/intro.pdf), European Parliament (http://www.beyond-gdp.eu/download/bgdp-bp-goossens.pdf), Princeton University, World Bank ( http://gfdrr.org/docs/WPS4875.pdf) and many other scholars that quote the source: http://www.google.it/search?q=piana+economics+web+institute+filetype%3Apdf&hl=it&num=100&lr=&ft=i&cr=&safe=images including peer-reviewed books by Springer Verlag.

2. The paragraph in itself does not hinges on quotation but is in line with standard manual on the issue.

Accordingly, the author asked Creto8 to restore the deleted paragraph. In absense of reply, the paragraph has been restored. — Preceding unsigned comment added by Logico1950 (talk • contribs) 07:07, 27 October 2011 (UTC)

Fair enough on restoring the material since I haven't replied. I'm finding not enough time for Wikipedia right now. A couple things. First, it is possible that the Economics Web Institute is a reliable source. Some of your stuff you link to above does not mention it as a source (so far as I can tell by searching the docs for "Economics Web Institute") so it remains unclear to me. I won't contest it in this article for now, but might being it to the the reliable sources noticeboard for more discussion, since it's still not completely clear to me. If I do, I'll be sure to let you know so you can participate in the discussion.

Second, what drew my attention is that the material is not standard. Standard textbook economics would be comparing marginal cost to marginal revenue, which may or may not equal the sales price.CRETOG8(t/c) 23:28, 29 October 2011 (UTC)

Thank you for accepting undoing your deletion. EWI is reliable because authoritative and independente sources do quote it. In particular, it would be nice if you controlled the quoted material, all of which mention it as a source: http://www.bls.gov/opub/uscs/intro.pdf : page 1, note 1 - http://www.beyond-gdp.eu/download/bgdp-bp-goossens.pdf : page 11. http://gfdrr.org/docs/WPS4875.pdf : page 24. Established publishers and universities making available EWI materials include Princeton University http://www.princeton.edu/~ina/gkg/confs/piana.pdf, Springer Verlag http://books.google.it/books?id=lvHWM1GwW8AC&pg=PA405&lpg=PA405&dq=springer+verlag+piana+valentino+political+climate+change&source=bl&ots=NWgUr3ph0z&sig=0hBewsjSRc4eDF6bDggWUvlCLxg&hl=it etc. The British newspaper Guardian has included the Economics Web Institute and its director in the list of "Leading economists... distinguished experts" that signed (as first) a letter on macroeconomic policies. http://www.guardian.co.uk/politics/2011/oct/29/george-osborne-plan-b-economy

http://www.guardian.co.uk/theobserver/2011/oct/30/observer-letters-economists-george-osborne?intcmp=239 In short, the Economics Web Institute is judged by peers as relevant and reliable. As for your second point, in perfectly competitive markets the marginal revenue is the sale price. Assuming perfectly competitive markets is quite standard.