Final answer:
Marginal private cost is the expense incurred by a seller to produce one more unit of a good. It is a critical factor in business decision-making, as it helps determine the profitability of increasing production. By comparing marginal costs to marginal revenue, firms can gauge whether additional production is beneficial.
Step-by-step explanation:
Marginal private cost is c. the cost paid by the seller in producing one additional unit of output. This concept is crucial for understanding how businesses make decisions regarding production levels.
Marginal cost is calculated by dividing the change in total cost by the change in output, and it is used to determine at which point an additional unit of output increases a firm's profit. As marginal costs generally rise with increased production, comparing them to the marginal revenue from selling an additional unit helps businesses decide whether producing more adds to their bottom line.
We can compare this marginal cost of producing an additional unit with the marginal revenue gained by selling that additional unit to reveal whether the additional unit is adding to the total profit or not. Thus, marginal cost helps producers understand how increasing or decreasing production affects profits. It is an internal cost borne by the producer and differs from an externality, which affects third parties outside the transaction.