What's an intuitive explanation of marginal cost, marginal revenue, contribution, and margin of safety?

Economics Dec 15, 2020

Expert Solution

The marginal cost is the incremental cost incurred in making one additional unit of a given product. The incremental cost is usually variable cost such as direct materials cost, direct labor cost or variable manufacturing overhead cost.
The marginal revenue is the incremental revenue generated by selling one extra unit of a given product.
The contribution margin per unit is determined by deducting the total variable cost per unit from the selling price per unit and it is used in determining the break-even point of a firm.
The margin of safety is defined as the amount or margin by which even if the projected sales fall short, no losses are incurred to the firm.

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