We’re most often concerned with the marginal cost per unit of limited resource (the amount of the resource that would be produced if no additional resources were being produced). This is the basis for most cost-benefit analysis that happens in economics.
In the case of capital goods, the marginal cost (the cost of producing one unit of capital) is often calculated by looking at the cost of production per unit of capital. But in the case of limited resources it’s not the same as the marginal cost. For example, if you’re selling lumber to a lumber company, the marginal cost is the cost of producing one unit of lumber, minus the cost of producing each additional unit of lumber.
In order to take advantage of the marginal cost you have to find a way to minimize the cost per unit of limited resource. In the case of capital goods, that means minimizing the cost of producing 1 unit of capital. For limited resources that makes sense to make one unit of limited resource, but for capital goods is generally not possible because there are usually too many units of limited resource per unit of capital.
In the case of capital goods, it’s easiest to think of the cost of producing 1 unit of capital as one unit of capital. In the case of limited resources, it’s generally not possible to make 1 unit of limited resource per unit of capital because the cost of producing a unit of limited resource can be more than the cost of producing 1 unit of capital.
So let’s say that the cost of producing 1 unit of capital is $1.00 while the cost of producing 1 unit of limited resource is $1.10. The cost of producing 1 unit of capital is the sum of the cost of producing 1 unit of capital and the cost of producing that unit of limited resource.
If you want to look at this from a cost-of-production perspective, you will find that the marginal cost of producing 1 unit of capital is the sum of the marginal product cost of producing 1 unit of capital and the marginal unit cost of producing 1 unit of limited resource. So the marginal product cost of producing 1 unit of capital is the product of 1.00 times 1 and the marginal unit cost of producing 1 unit of limited resource is the unit cost of producing 1 unit of limited resource.
To put it another way, the marginal cost of producing 1 unit of capital is exactly the same as the marginal cost of producing 1 unit of limited resource. So when you look at the cost of producing 1 unit of capital, you are, in fact, looking at the marginal product cost of producing 1 unit of capital.
The difference between the marginal cost of producing 1 unit of capital, the marginal cost of producing 1 unit of limited resource, and the marginal cost of producing 1 unit of limited resource is 3.3 times, according to the authors.
Although it’s still not quite clear, I think the margin of production is the amount of money that could be made if you could produce 1 unit of capital for no money at all. As it turns out, that’s exactly how the Margin Of Profitability is derived from the cost of producing 1 unit of capital, the marginal cost of producing 1 unit of limited resource, and the marginal cost of producing 1 unit of limited resource.
The margin of profit is how much profit you can make by producing 1 unit of capital at a cost of zero, a marginal cost of zero, and a marginal cost of zero. Margins of profitability are generally calculated using the marginal cost of producing 1 unit of capital, the marginal cost of producing 1 unit of limited resource, and the marginal cost of producing 1 unit of limited resource.
