For us calculating the total fixed cost involved the costs of buying and maintaining all that equipment. As an industry, however, making money should have been a slam dunk. Once your infrastructure is in place then all you do is sell service – and we had lots of capacity to accommodate that service. In our illustrative example, the marginal cost of production comes out to $50 per unit. The total change in cost is $5k, while the total change in production is 100 units.
- Thus if fixed cost were to double, the marginal cost MC would not be affected, and consequently, the profit-maximizing quantity and price would not change.
- Marginal cost is strictly an internal reporting calculation that is not required for external financial reporting.
- If the hat factory was unable to handle any more unit...
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