Negotiation concepts – Marginal

Economists use the word marginal all the time. The most common is:

marginal cost means the change in total cost that arises when the quantity produced of a good increases by one unit. Or more precisely, the first derivative of the cost function.

Marginal can be used in front of a range of financial terms, for example revenue or profit. Importantly it can also be used in relation to utility as well.

Photography typically has high fixed and low variable costs but a very low marginal cost. Buying a camera, creating a set and hiring models then taking one photo costs virtually the same as taking two photos. But the marginal cost is NOT zero as some people seem to believe but it is close. I’ll explain that later.

During negotiating you need to understand your costs, both the amount and how they change, otherwise you risk agreeing to a deal that would actually cost you money. This is a bad idea.

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