Contribution Margin

Contribution margin is the exact amount one more sold unit adds after variable cost.

highlighted = computed this step

Subtract variable cost

Contribution margin starts with price $10 and subtracts unit variable cost $4.

\$10-\$4

Each extra unit contributes $6 toward fixed cost and then profit.

p-v=\$6

On the plot, the revenue line rises faster than the total-cost line because contribution margin is positive.

\text{revenue slope}>\text{cost slope}

The margin is exact for this constant-price, constant-cost model only.

\text{constant unit economics}