However, note that:

Thus:

This is the firm’s profit margin. This definition implies that if the market price is above average cost, average

profit, and thus total profit, will be positive. If price is below average cost, then profits will be negative.

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 total profit—or not. Thus, marginal

cost helps producers understand how increasing or decreasing production affects profits.

A Variety of Cost Patterns

The pattern of costs varies among industries and even among firms in the same industry. Some businesses

have high fixed costs, but low marginal costs. Consider, for example, an internet company that provides

medical advice to customers. Consumers might pay such a company directly, or perhaps hospitals or
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