What is marginal profit

Any entrepreneur tries to get income from his activities. For this, business costs must be less than revenue. The race for marginal profit contributes to the evolution of the market as a whole.

Entrepreneur Margin

Margin is the difference between income and costs. It can be determined both in rubles (euros, dollars), and as a percentage of the cost of goods / services. Marginal profit can be calculated both for the entire business as a whole, and for each product / service separately. In his autobiography, "My Life. My Achievements, " Henry Ford, a well-known automobile manufacturer and promoter of automobiles, advised entrepreneurs to take a popular product as the basis of their product, to simplify and improve it to the maximum. "Only by controlling the costs of the sample can you get the maximum marginal profit in the market, " Ford wrote.

Monopoly

One of the most reliable ways to get high margins (super-profits) is to create a monopoly. If the enterprise is the sole supplier of goods demanded in the market, it can put any price on it; there is no “price ceiling”.

At all times, business people wanted to become owners of monopolies and receive huge marginal profits. Monopolies were handed out and given by emperors, captured as a result of power coups. Currently, the laws of most countries protect fair competition that fosters the evolution of the market and goods. Antitrust commissions also exist in Russia. The Federal Antimonopoly Service (FAS) prohibits collusion of large enterprises, anti-competitive price reductions for essential goods. The fight against monopolists allows reducing prices and their marginal profits, creating fair competition, and is beneficial to small and medium-sized businesses.

Stock Exchange

The concept of "marginal profit" is one of the most important in operations on the stock exchange and is one of the parameters for evaluating a trader. Most of the transactions in the securities market take place using borrowed funds - leverage, or leverage. A bank can give a financier a loan to secure margin - the amount of money or highly liquid (which can be easily sold) instruments. Traders use leverage in transactions to change the stock / currency rate. If the transaction succeeds, the trader receives a marginal profit - the spread (rate difference) multiplied by the amount of borrowed funds. If the trader is mistaken, he loses the “bet” - the margin, which is the security of the transaction.