Marginal cost is the additional cost you incur to produce one more unit. In the example, it's what it costs to make one more cake. Typically, marginal costs start out high and decline as you increase production, as overhead gets spread out over more units and you put unused capacity to work at relatively low cost. At some point, though, marginal cost bottoms out: You reach full capacity, and if you want to increase production, you'll have to buy more ovens and pans, hire more workers, keep longer hours, and so on. All that adds costs, so your marginal cost begins to rise. Now the marginal cost is going up while marginal revenue is declining, for reasons already discussed, meaning you're making less and less profit on each cake.
A baker chooses to bake another cake because the marginal benefit is greater than the __(blank)__ cost.
Marginal cost is the additional cost you incur to produce one more unit. In the example, it's what it costs to make one more cake. Typically, marginal costs start out high and decline as you increase production, as overhead gets spread out over more units and you put unused capacity to work at relatively low cost. At some point, though, marginal cost bottoms out: You reach full capacity, and if you want to increase production, you'll have to buy more ovens and pans, hire more workers, keep longer hours, and so on. All that adds costs, so your marginal cost begins to rise. Now the marginal cost is going up while marginal revenue is declining, for reasons already discussed, meaning you're making less and less profit on each cake.
A baker chooses to bake another cake because the marginal benefit is greater than the __(blank)__ cost.
