Bcom 1st Year Marginal Cost notes in english


Bcom 1st Year Marginal Cost

Marginal cost 

In simple words, the increase in the total cost due to the production of one additional unit of a commodity is called marginal cost. In other words, marginal unit cost is called marginal cost. This can be further clarified by an example – assuming a production unit produces 20 units of a commodity at a cost of ₹ 400. Now if that production unit produces 21 units instead of 20 units and the total production expenditure comes to ₹ 425, the cost of production on the 21st unit will be ₹ 25. In this case, the twenty-first unit will be the marginal unit and ₹ 25 marginal cost. The marginal cost can also be determined by the total variable cost (TVC) in the short run. In the short run, the production of one additional unit increases the total conversion cost, This is called marginal cost. It falls in the beginning, then reaches the minimum point and rises in the end. The following two things should be kept in mind regarding marginal cost (MC) 

(i) The MC line reaches its lowest point at a lower volume of output than AVC and ATC. 

(ii) The MC line passes through the AVC and ATC lines at their lowest points. 

Average Cost The cost that is obtained by dividing the total cost by the total production is called the average cost. In other words, average cost – 10 lanas total production (units) If the total cost of 10 units is R 70, then the average cost of a commodity will be 70/10 = ₹ 7. 

Rules of origin also have a profound effect on average costs. When the growth increase rule is applied, the average cost decreases along with the production increase. When the originality parity rule is applied, average production costs tend to increase along with production growth. h

Total Cost: The total cost that is spent on total production is called total cost. The total cost includes all types of monetary expenditure on production. 

Total cost is equal to the sum of total fixed cost and total variable cost, so total average cost is the sum of average fixed cost and average variable cost. 

The amount of total cost always decreases with the increase in production, no matter what the rules of origin are. The concepts of discrete cost and marginal cost can be explained by a simple example of different origins.

Looking at the following tables, it is clear that with the introduction of the Genesis Growth Rule or the Cost Depreciation Rule, the marginal cost keeps falling (decreasing) continuously, the average cost also decreases, but at a faster rate than the marginal cost. But the total cost keeps increasing. 

There is no change in the marginal cost and average cost under the originality parity rule. Only the total cost increases proportionately 

Units of production total cost average cost marginal cost

All three costs increase as well as production growth under the cost reduction rule. There is a continuous increase in marginal expenditure and average expenditure. The remarkable thing is that the marginal cost increases at a faster rate than the average cost.

Relation between Marginal Cost and Average Cost To this relationship Graphs can also be displayed by -20 (A). 

It is clear from the diagram-20 (A) that when the average cost (AC) is low, the marginal cost is reduced even more rapidly. Average cost in drawing from point A to point B. Is falling continuously When the average cost increases, the marginal cost also increases, as a result both curve lines are U shaped. The root cause of the U shape of these curve lines is that when production is started, the optimum coincidence of production increases with the increase in production, leading to both average and marginal costs falling. After some time, this optimal combination dissolves because there is no change in the stable production of production, but the quantity of variable output increases, as a result of which the total production increases. But the quantity of marginal production keeps decreasing continuously which increases the marginal and average cost. The average cost from B to C also increases. Along with the increase in average production cost, marginal cost also increases. This is why marginal cost (MC) rises above the average cost (AC). 

Modern of production volume diagram-20 (B) distribution

Modern economists have accepted a new theory on the basis of demand and supply instead of accepting the marginal productivity principle of distribution. This principle of demand and supply is very similar to the theory of value. The basic belief of this principle is that just as the price of a commodity is determined by the powers of demand and supply of goods, the produce of produce is also rewarded by their powers of demand and supply.


The modern theory of distribution is based on the following assumptions-

(1) The condition of complete competition in the market exists.

(2) The law of loss of origin or the rule of variable proportions applies.

(3) All units of the instrument are identical. Hence, they are full replacements of each other.

(4) Each instrument is completely divisible into smaller units.

(5) All the means of origin are completely dynamic. 

(6) The marginal productivity of the instrument can be measured and given its opportunity cost. 

Demand of Factors of Production

The demand for different products of production is not direct demand and derivative demand and demand of the instrument depends on its marginal productivity. This means that if the demand for an item increases, then the demand for the means used in the production of that commodity also increases. The quantity demanded of any instrument by the producers depends on the Marginal Revenue Productivity. Therefore, the producer does not yield any income more than his or her productivity, in addition, as additional units of an instrument are used, the productivity will continue to decrease as the Hassan rule is operational This is why the curve of demand of the instrument bends from left to right downward. 

Supply of Factors of Production

Just as the supply of an item is affected by the cost of the commodity, similarly the supply of the product of origin is determined by its Opportunity Cost. “Opportunity cost is the amount of money that an instrument can find in any other best alternative use. Therefore, the instrument must get as much return in the current industry as it can get in any other alternative industry, otherwise the instrument will abandon its current industry and move to that particular industry. Thus the husband’s value of the instrument is determined by its opportunity cost. The higher the price of the instrument, the higher the price of the instrument. Therefore, the supply time will rise from left to right. Additionally, the supply of a particular instrument is influenced by many factors. Such as the cost of labor education and training ‘, Working conditions etc. are affected. In addition, economic components along with economic components also have a wide impact on the supply of resources.

Determination of Factor Pricing 

The reward of means or subsidies will be determined by the point at which the demand for the instrument will be exactly equal to its supply. In Figure 21, the demand line of the instrument DD and | Pati Rekha is SS. Those who are cutting each other at the P point. Thus demand and supply of means. OM will be the quantity and the OS will be the return. Here a question arises as to why the OS is determined by the return P point, why is the OS, or OS, not determined? The reason for this is that OS is the quantity demanded at the point SA, while the quantity supplied is S, B. Are in 

Marginal productivity theory

The marginal productivity principle is a very important mill of distribution. This theory gives a general explanation of how the various justifiable rewards of genesis should be determined. This theory is basically based on the replacement principle of Substitution. This theory states that the price of a measure of production is determined by its marginal productivity. This theory was initially interpreted in the late 19th century by economists such as Prof. JB Clans Wickstead, Walras, and later by notable economists such as Mrs. Joan Robbinson and JR Hicks in da development. Have given. 

In simple terms, the essence of this theory is that the value of goods and services in the long run is determined by their marginal utility, in the same way that the yield of different means of origin is also determined by their marginal productivity. Thus, this theory states that the reward that every means of production (other than courageous) receives from national income is equal to the marginal origin of that particular instrument. Yes, in any period (or in the short run) the returns to an instrument may be less or more than the marginal productivity, but in the long run or in the case of equities, the returns to the instrument will be equal to its marginal origin (productivity). . 

According to the above interpretation, the two main things of this theory are as follows –

(1) The price of an instrument depends on its productivity. 

(2) The price of an instrument is determined by its marginal productivity. 

Definitions of Marginal Productivity Principle 

(1) In the words of Prof. Simons – “In conditions of complete competition and full mobility of the means of origin, the labor is paid equal to the origin of the labor employed in marginal production.”

2) In the words of Prof. Hicks- “Marginal productivity is the measure of the rewards of the means of generation that it receives in the state of equilibrium, that is, the growth in the firm’s origins while retaining the rest of the organization of the industry. Which the firm gets by adding a small unit to the supply of that instrument. ” 

We can also take an example to illustrate the notion of marginal productivity. Suppose 24 workers work in a factory along with other means of production, thereby earning a total income of ₹ 5000. Now if by increasing the other means of generation as soon as possible, only increase the number of workers to one, i.e. increase the number of workers to 25, then the factory gets an income of ₹ 5100. Thus an increase to a worker increases the income by ₹ 100. This will be called the marginal origin of ₹ 100 last (marginal) labor. 

Hence, the wages of the laborers will not exceed ₹ 100 in any case and the remaining workers will also receive wages at the same rate. Thus the marginal productivity of the instrument is another name for the productivity of its last unit. . 

(3) In the words of Mrs. Joan Robinson – “marginal production refers to the increase in production by the use of one additional person with a certain amount of other means.” In other words, it is the product of marginal physical productivity of labor and marginal income of the production unit. 

(4) In the words of Prof. Samuelson, “The marginal origin of a productive instrument is the excess quantity produced by an additional unit of that instrument, while the other means remain the same.” 

(5) In the words of Prof. Hanson, “The marginal origin of an instrument is the increase in the total income of the adventurer which is obtained by applying an additional unit of that instrument to the work.” 

Validations of marginal productivity principle

(Assumptions of the Marginal Productivity Theory)

The marginal productivity principle is based on the following assumptions –

(1) All the units of production are mutually identical and they are full replacements of each other. 

 (2) Not only different units of one instrument, but different units of different instruments are also complete replacements. 

(3) The situation of absolute competition is found in the means market and the market of goods produced by the means. 

(4) Only one instrument is variable and remaining means remain constant. In other words, 

The marginal productivity of the shawl instrument can be determined. 

(5) The goal of each producer is to achieve maximum profit. 

(6) The state of full employment exists in the economy. 

(7) Under the principle, the law of variable proportions is considered to be operational. 

(8) This principle of marginal productivity is applicable only in the long run; in the short term, the award of the instrument can reduce its marginal productivity more or less. 

Kinds or Measurements of Marginal Productivity 

Marginal productivity can be expressed in three ways 

Marginal Physical Product –

The total physical product using an additional unit of an instrument. (Total Physical Product) increase. It is called marginal physical product, while other means are kept constant. The marginal physical product curve is always the inverse shape of U as shown in figure-22. 

2. Marginal Revenue Product –

When the marginal physical 0 expresses the growth of the product as a liquid, it is called Marginal Revenue Product. 

3. Value of Marginal Product

If the surplus produced, that is, the physical product multiplied by the value of the commodity, then the value of the marginal product is obtained, remember, in the case of perfect competition, the price (P) and the marginal income (proceeds) (MR) of each other. Is equal to, but in the case of imperfect competition, the yield value of the uniform marginal physical product of the commodity mm remains lower than the marginal income (proceeds) (MR) price, consequent value (MP) and marginal proceeds products (MRP) They are different rather than identical.

Criticism of marginal productivity principle 

This theory is criticized as follows 

1. It is very difficult to determine the origin of any particular factor from the joint origin (it is difficult to determine the contribution of any particular factor in joint production) – Taussig, Devenport, Carver ) And Adroance etc. economists believe that it is very difficult to know the marginal productivity of a particular instrument because 

(i) The production of each item is the combined result of different products, so it is very difficult to determine the productivity of a particular instrument. 

(ii) Prof. Hobson opines that the ratio of the means of production to production is constant due to some technical reasons and cannot be easily changed. 


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