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Marginal cost is an important component of business decisions since a business needs to know the most efficient level of production. Firms compare the marginal cost and marginal revenue which is the extra revenue one would earn by selling an extra unit. When the marginal revenue is higher than the marginal cost, then it results in greater profit by producing an extra unit. In case the marginal cost is greater, additional production can result in losses. Such a comparison is useful in enabling companies to maximize their amounts and prevent wasteful expenditure of resources.

Also read: https://accountingbyte.com/marginal-cost/