Question

Explain the concepts of marginal product and marginal cost.

How are these two concepts linked?

Answer 1

Marginal cost is the cost that the firm in the market has spend to produce an extra of a good, and marginal revenue is the revenue that the firm received after selling an extra of a good, Marginal cost and the marginal revenue tells how much of the resources a firm is using to produce an additional goods and how much they are receiving for that good in the market.

These two concepts are linked because a price searching firm in the market will try to match these two concepts to find the ideal output in the market, at the point where the MR and the MC are equal the firm will be maximising its profit.