Question

Amazon experienced shipping delays as sales increased during the coronavirus pandemic. How do these delays impact Amazon’s marginal production cost and Amazon’s average cost of production? In the answer explain the difference between marginal cost and average cost?

Answer 1

due to increased sale volume amazon has to incur additional cost on shipping and other distribution channels and therefore the MC would be increased and so thus the AC of production.due to increased cost there are two option in front of the amazon,either it can icnrease the prices of goods and services provided by the amazon and maintain the profit margin but the competitor can get advantage of this, or it can sustain the same price and can bear the loss of profit due to increased cost of production.

MARGINAL COST-

marginal cost is the cost of producing an additional unit.this means that how much extra cost a firm is incurring to produce additional unit of good.in the increasing return concept the MC of the firm decreases and when there is a decreasing return in the firm then the MC would increase.

AVERAGE COST-

average cost is the per unit price of a good which is an equivalent representative value of any product.in the MC concept the price is varied from each separate unit but in AC concept the price of each and every unit would be affected and represent the same value.

PRACTICAL EXAMPLE