Why is the marginal cost of admitting one more person to a movie theater zero?

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Expert Solution

Marginal cost is the cost needed to produce one extra unit of the product.

Company incurs some amount of fixed costs to produce any number of units of the product. So, the fixed cost remains constant for all the units. Variable cost is the cost incurred to buy the raw materials etc. This cost increases as the number of units increases.

Total cost = Fixed cost + Variable cost

In simple terms, marginal cost is the difference between total costs before producing 1 extra unit and after producing 1 extra unit of the product.

In the given question the marginal cost of an extra person is considered as zero. This is because, the total cost without the extra person and after the extra person is same. This can be explained as;

In theatres the total cost is derived by only considering the fixed cost as there will not be any variable cost in this market. So, even with the person or without the person the fixed cost incurred is same. So, the total cost before the entry of the extra person and after the entry of the extra person is same. This is the reason why marginal cost is zero for an additional person in a movie theatre.

Rahul Sunny answered 1 year ago

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