Why marginal cost approaching $0 is not a reason for giving away your product for free.

1. Relevance of Marginal Cost In Pricing Rags Srinivasan, IterativePath.com Free MC = 0 does not mean your price =0 MC = MR

2. Suppose you made and sold cup-cakes that costs you $2 to make … and you are wondering how to price it The marginal cost, the cost to make each cupcake is $2

3. You First Need To Find How Many You Can Sell At Each Price

4. Your Revenues At Each Price Point Will Look Like …

5. Your Total Profit Will Look Like … Total Profit

6. Your Revenue From Selling Each Additional Unit … Marginal Revenue

7. Your Total Profit Will Look Like … Marginal Revenue (revenue by selling one additional unit)

8. You Can Make And Sell Until The Revenue From Each Additional Unit Is Greater Than The Cost To Make It Marginal Revenue meets Marginal Cost at 4.5 units

9. Let Us Assume Abundance Of Flour, Chocolate etc Let us say your Marginal Cost drops to $0

10. Demand For Your Product Does Not Change

11. Your Revenues Do Not Change

12. Your Marginal Revenue Does Not Change Marginal Revenue, same as before

13. You Still Can Only Make And Sell Until The Revenue From Each Additional Unit Is Greater Than The Cost To Make It Marginal Revenue meets Marginal Cost at 5.5 units

14. Did it make sense to give your product away for free because your Marginal Cost dropped to $0?