Profit maximization: MR=MC rule

Key Questions

  • Marginal cost is the additional cost incurred upon the production of one additional unit of good . Consider an example. Lets say I sell lemonade in my neighborhood. To make one glass of lemonade, I need:

    • 1 lemon
    • 200 milliliters of water

    Lets say, 1 lemon costs 50 cents and 200 milliliters of water cost 50 cents. The marginal cost or the additional cost of producing one more glass of lemonade is $1 (50c + 50c).