2. 110 = Marginal Cost
When more units are produced, the overall cost changes, and this is known as the marginal cost.
Total Cost Change / Change in Output is the definition of marginal cost.
So marginal cost at the fifth unit will be
Marginal Cost = 380 - 270 / 5 - 4
Marginal Cost = 110 / 1
Marginal Cost = 110
Hence option 2 is correct
The concept of Marginal Cost is important in managerial accounting because it can help an organization optimize its production through economies of scale.
A company's profits can be maximized by producing to the point where marginal cost (MC) equals marginal revenue (MR).
Because fixed costs remain constant regardless of production level, higher production results in a lower fixed cost per unit as the total is spread across more units.
Variable costs vary with production level, so producing more units will increase variable costs.
Companies must be cautious when increasing production necessitates step costs as a result of changes in relevant ranges (i.e. additional machinery or storage space needed).
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