What is a marginal cost? A marginal cost is the cost of an item that is worth less than the value of a unit of the item. For example, the difference between paying a $100 and a $100,000 on a car. The marginal cost on a car is the cost of a car in dollars, minus the cost of the car that it replaces in the market.
In the world of car buying, you can get a car for a few hundred dollars (or even a few thousand dollars for some models), so a car is a good value. The trouble is when you’re trying to sell your car, your salesman is only willing to deal with you if you are willing to pay a little more for your car.
You can get some benefit from a car, too. For instance, if you have a car, you can use a lot of gas; you could save money in the long run by not having to drive to work, or you could save money in the short run by not paying the gas bill if you drive to work.
This isn’t just a minor quibble, this is very important. The marginal cost of a car is, by definition, the amount of money you would save if you had to drive to work, but the marginal cost of a car is also the amount of money you would save if you drove to work. If you save one dollar per mile you drive, you would save five dollars per mile.
But if you drive to work, you are taking gas money from other people who would otherwise be paying you to drive. So it might be more cost-effective for you to just not drive.
The thing is, unless you already drive often enough, saving one dollar per mile doesn’t really make you a better driver. In fact, if you save one dollar per mile, you will be driving even less miles. If you drive enough to save one dollar per mile, you will save more than one dollar for each mile you drive, though you probably won’t get much.
For example, if you drive just a couple miles from the road, you save one dollar on each mile. And if you drive a couple miles more often, you save one dollar on each mile. And that’s a simple task. I would say, if you’re driving at 50 miles per hour, you would be driving about a mile more. But if you’re driving to a destination like the ocean, you would save one dollar and one dollar on each mile.
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Marginal cost and benefit is one of the best ways to think about how we make decisions. Why are we driving to this destination? What is the benefit for that one dollar and one dollar that we are saving? What is the cost? We can do this in the same way we can think about whether to buy or build a house. Marginal costs are things that are really only worth doing if they add up to a net cost.
A marginal cost is something that we can reasonably consider in the future, and something that has to be weighed against the benefit. For example, if you have a new, brand new apartment, marginal cost is the sum of the utility of your apartment (the cost of the building and materials) and the cost of your maintenance (the cost of the maintenance, if you have it).