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Marginal cost

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Definition Edit

Marginal cost is

the cost of the next in a series of products. Typically, first products cost more because of the expenditures required to set up the production process, with the unit cost then falling over time as the volume of activity increases. For most manufactured goods, however, diminishing returns-to-scale eventually cause marginal costs to rise. With information-technology products, by contrast, the dynamics are dramatically different: extremely high set-up costs (hundreds of millions of dollars for some software products) followed by almost zero costs for extra copies and no diminishing returns-to-scale for extremely high production volumes. Pricing policies for information goods are thus markedly different than for traditional industrial goods, and pricing policies in the economy at large are likely to change as the Information Age progresses.[1]

References Edit

  1. The Harvard Policy Group on Network-enabled Services and Government, John F. Kennedy School of Government, Eight Imperatives for Leaders in a Networked World: Guidelines for the 2000 Election and Beyond 17 (Mar. 2000) (full-text).

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