A health care organization with a community service orientation has other goals, but we ignore them for the time being. We'll be working again with the imaginary Joan's Home Care Co., using the same cost numbers as in the preceding tutorial. The idea here is simple, once you get used to the jargon. Increasing production makes both total cost and total revenue go up. If the revenue goes up more than the cost, profit goes up.
Marginal cost is how much cost goes up from making one more.
The price is how much revenue goes up from selling one more. If the price is bigger than the marginal cost, then what you gain in revenue is greater than what you lose in added cost. That makes your profit higher, so you should go ahead and expand production. On the other hand, if price is less than marginal cost, increasing production costs you more than the revenue you gain. You should not expand production.