Relevance of Marginal Cost In PricingRags Srinivasan, IterativePath.comFreeMC = 0 does not mean your price =0MC = MR

Suppose you made and sold cup-cakes that costs you $2 to make… and you are wondering how to price itThe marginal cost, the cost to make each cupcake is $2

You First Need To Find How Many You Can Sell At Each Price

Your Revenues At Each Price Point Will Look Like …

Your Total Profit Will Look Like …Total Profit

Your Revenue From Selling Each Additional Unit …Marginal Revenue

Your Total Profit Will Look Like …Marginal Revenue (revenue by selling one additional unit)

You Can Make And Sell Until The Revenue From Each Additional Unit Is Greater Than The Cost To Make ItMarginal Revenue meets Marginal Cost at 4.5 units

Let Us Assume Abundance Of Flour, Chocolate etcLet us say your Marginal Cost drops to $0

Demand For Your Product Does Not Change

Your Revenues Do Not Change

Your Marginal Revenue Does Not ChangeMarginal Revenue, same as before

You Still Can Only Make And Sell Until The Revenue From Each Additional Unit Is Greater Than The Cost To Make ItMarginal Revenue meets Marginal Cost at 5.5 units

Did it make sense to give your product away for free because your Marginal Cost dropped to $0?