Marginal Cost - Deepstash

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Marginal Benefit vs. Marginal Cost: What's the Difference?

Marginal Cost

Producers consider marginal cost, which is the small but measurable change in the expense to the business if it produces one additional unit.

In producing a product, efficiency in productivity can result in making more products in the same amount of time. The cost of raw materials may also go down if it is purchased in bulk, therefore, decreasing the marginal cost.

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SIMILAR ARTICLES & IDEAS:

Microeconomics: Comparative Advantage
Microeconomics: Comparative Advantage

The law of comparative advantage was first mentioned in 1817 by English economist David Ricardo.

A company has a comparative advantage when it is able to provide a good or service at

Opportunity Cost

An opportunity cost is the potential ‘alternative’ or benefit that is forfeited when one chooses a particular option.

The other, foregone option, if it is lower than other companies, is the key factor in this trade-off.

Skills: Diversity And Specialization

Comparative advantage is also measured by the salary yardstick, and how much a person’s time, skills and core skill sets are worth.

Example: Michael Jordan is a skilled basketball player, and is very tall. If he wants, he could paint his own house by himself and do it quickly due to his height. But as he is also a skilled sportsperson, he could earn much more in that time, and probably hire someone else to paint his house, even if the hired painter (who has a comparative advantage due to his specialization of painting houses) takes more time to do it.

A financial crisis
A financial crisis

A financial crisis is often associated with a panic or a bank run where investors sell off assets or withdraw money from savings accounts.

  • Asset prices drop in value.
  • Consu...
Causes of a financial crisis

Generally, a crisis is caused if institutions or assets are overvalued, and can be worsened by panic and herd-like investor behaviour.

Contributing factors include systemic failures, unexpected or uncontrollable human behaviour, regulatory absence or failures, or contagions that is like a virus that spread from one institution or country to the next. If left unchecked, an economic crisis can cause a recession or depression.

Financial crisis examples
  • The Stock Crash of 1929. On Oct. 24, 1929, share prices collapsed after a period of wild speculation and borrowing to buy shares. It led to the Great Depression, which was felt worldwide. One trigger of the crash was a drastic oversupply of commodity crops, which led to a steep decline in prices.
  • The 20007-2008 Global Financial Crisis. This was the worst economic disaster since the Stock Market Crash of 1929. It started with a subprime mortgage lending crisis in 2007. Then it moved into a global banking crisis with the failure of investment bank Lehman Brothers in September 2008.
Market Value or OMV (Open Market Valuation)

OMV is the price an asset would get in the marketplace, or the value the investment community gives to particular equity or business.

Market value is also used to refer to ...

Understanding Market Value

A company's market value is a good indication of how investors perceive a business.

Market value is determined by the valuations or multiples accorded by investors to companies, including price-to-sales, price-to-earnings, enterprise value-to-EBITDA, etc. The higher the valuations, the bigger the market value.

The Dynamic Nature of Market Values
  • Market value is influenced by the business cycle and can fluctuate over periods of time. Market values decrease during recessions (bear markets) and rise during economic expansions (bull markets).
  • Market value also depends on the sector in which the company operates, its profitability, debt load, and the broad market environment.
  • Market value for a firm may be very different from book value or shareholders' equity. A stock will be considered undervalued if its market value is well below book value. It does not mean that a stock is overvalued if it is trading at a premium to book value - it again depends on the sector and the extent of the premium compared to the stock's peers.