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Critical Thinking Essay

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Critical Thinking Questions
26. How does fixed cost affect marginal cost? Why is this relationship important?
A fixed cost is the overhead charge that does not change with the volume of business. (Fixed cost, n.d.). The marginal cost refers to the additional cost that is charged in the production of one more unit of good. (Greenlaw & Taylor, 2017). Fixed cost is constant and does not affect marginal cost in a negative light. If there were no variable cost and it would have only been fixed cost in the production of a good, that would be considered the total cost. The marginal cost is calculated as the change in total cost divided by the change in production of the goods or service. The difference would be zero. Based on this fact, the fixed cost does not affect the marginal cost.
Having fixed cost allows a higher economic profit for the firm. While this question is about the relationship between the fixed and marginal cost, it is the variable cost that would affect the marginal cost; as the term suggest, it changes.
The relationship between the fixed and marginal cost is that since the fixed cost is constant. Therefore, the projected revenue will always be covering the fixed cost. There is no change in the cost and as a result the firm will be able to manage its …show more content…

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