Question

2.The cost curves for a firm producing a digital product such as an app or an online course or an e-book are quite different than those of a firm producing a physical product such as clothing or food or furniture. Explain the difference in terms of marginal costs.

Answer 1

Consider this example, wifi provider in your area is providing wifi to every household there. And suppose because of this there's an increase in demand after seeing the speed and good service of the provider. Now, in order provide its service there the provider needs to install wire , meaning an investment has to be made and there will be additional maintenance cost. When it comes to digital products it's very easy to multiply when the original is created. Once a file is created it takes almost zero additional cost to copy it. Hence marginal cost is approximately zero. That is why there's a difference in costs of providing a digital product and a physical product.