Marginal Value relates to how much of something we have.
Generally speaking the Marginal Value for an item decreases as the quantity of items that we have increases.
For example suppose you are starving and someone gives you one cookie. That cookie has immense Marginal Value to you.
Now suppose they give
1 more. That one also has a great deal of Marginal Value but not as much as the first one, because you are somewhat satisfied.
Now suppose they give you
1000 more cookies. You eat
100 and can’t eat any more. The remaining cookies have zero Marginal Value to you.
We sell high precision Robotic Gears with purchase cost $400,000 and sales price $700,000.
We expect to sell
7 of these, plus or minus
Suppose on average we always carry
10 units. The average inventory level is
We end up only selling
3 each year. The remaining
7 units that we carried had zero Marginal Value.
They only added Marginal Cost, because the
cost of capital for these items is high.
Generally speaking there is a decrease in Marginal Value for each additional Robotic gear that we choose to carry.
Related Concepts, Formulas, and Guides
Service Parts Profit Optimization
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