Marginal Cost vs Marginal Revenue
Marginal Cost and Marginal Revenue are related concepts in AP Economics that students often mix up. In short: marginal cost is marginal Cost is the additional cost incurred by producing one more unit of output. Meanwhile, marginal revenue is marginal revenue is the additional revenue a firm earns from selling one more unit of output. Here is how they compare side by side.
Marginal Cost is the additional cost incurred by producing one more unit of output.
It is calculated as the change in total cost divided by the change in quantity. Marginal cost typically decreases at first due to increasing marginal returns, then rises due to diminishing returns.
Marginal revenue is the additional revenue a firm earns from selling one more unit of output.
For a perfectly competitive firm, marginal revenue equals the market price because the firm is a price taker. For a price maker such as a monopoly, marginal revenue lies below price and falls faster than demand, because cutting price to sell one more unit lowers revenue on all prior units. Every firm maximizes profit where marginal revenue equals marginal cost.