Minimizing Costs

Managers also use techniques of optimization to find levels of construction that reduce total costs. Recall that:

TC = AQ + C

Or   Total cost = variable costs + fixed costs,

where Q is quantity and A and C are constants.  In marginal or insignificant analysis, only terms that enclose variables get differentiate on. Thus, the marginal cost purpose (MC) represents the conversion of variable expenses to insignificant costs, where the insignificant cost associated with a given unit represents the additional cost of producing the next unit. Setting the marginal cost equation to zero and solve for a Q value minimize total expenses.