Can you lower the marginal cost for the next unit of your product? Think about software or pharmaceuticals: research and development tends to be high cost, the next unit of the product is marginal.

When and how to apply Marginal Cost:

The marginal cost of production and marginal revenue are economic indicators used to determine the optimal output and unit price for maximizing profits.

The relationship between marginal revenue and marginal cost of production enables a rational company to determine when it has maximized its profit potential. In this scenario, the objective is for marginal revenue to equal marginal cost.

Marginal cost figures significantly into the marginal cost pricing doctrine, aka marginal cost theory, an economic principle that dictates that prices for products or rates for service should be predicated upon marginal costs for the purpose of economic efficiency.

“Under pure competition, price will be set at marginal cost” (the marginal price will equal the marginal cost)," Kahn wrote, and this results in “the use of society's limited resources in such a way as to maximize consumer satisfaction.”

Well-known companies that use this pattern are Beyond Meat and Tesla.