Marginal profit is the change in profit a firm would receive if it produced one more unit of goods. It is the difference between marginal revenue and marginal cost.
Marginal profit is one of the marginal concepts in economics. Marginal concepts are associated with specific changes in the use of goods and services. In this case, marginal profit, income, and cost refer to changes in profit, income, and cost associated with producing one more unit of goods.
Marginal profit is useful in business for making decisions on optimizing profit: if it is more than zero, a firm stands to increase its profits by producing more goods. Vice-versa, a firm’s marginal profit is negative when it can increase its profits by producing less. Therefore, a zero marginal profit indicates a state of equilibrium where a firm produces exactly enough to maximize its profit.
Marginal profit can be expressed in a function graph where x is the amount produced, MP is the marginal profit, MI is the marginal income, and MC is the marginal cost.
MP(x) = MI(x) – MC(x)
If all three functions were built on a graph, the marginal profit curve would intersect zero at the same x where the other two curves intersect each other.