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The cost of producing a good is normally made up of fixed costs and variable costs. Average cost refers to the total cost of producing a particular quantity of goods divided by the quantity. Whereas marginal cost, refers to the addition to total cost of the production of one extra unit of output. The production of tap water has significant fixed costs, not least in the infrastructure required to store, treat and pump water to individual households. However, once these fixed costs are paid the variable costs of producing water are relatively small and as such the additional cost of producing an extra litre of water is close to zero.
Supplying bottled water on the other hand involves many more variable costs in areas such as raw materials, distribution, labour and energy consumption.
The marginal cost of a litre of tap water will certainly be lower than a litre of bottled water. However, the position with regard to average cost is less clear cut.
marlinbito answered the question on July 5, 2018 at 14:55
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