Question : Which of the following cost is related to marginal cost ?
Option 1: Variable cost .
Option 2: Implicit cost
Option 3: Prime cost .
Option 4: Fixed cost .
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Correct Answer: Variable cost .
Solution : The correct option is Variable cost.
Variable costs are expenses that change with the level of production, such as the cost of raw materials in a bakery. Marginal cost, on the other hand, represents the additional cost of producing one more unit and is calculated by dividing the change in total cost by the change in quantity. In the short run, where fixed costs remain constant, marginal cost is heavily influenced by variable costs. This is because any change in cost is primarily due to variations in these expenses.
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