Marginal Cost

 

Definition of Marginal Cost

Marginal Cost is the cost of producing an extra unit.

It is the addition to Total Cost from selling one extra unit.

Q Total Cost (TC) Marginal Cost (MC) Average Cost (AC)
1 10 10 10
2 16 6 8
3 23 7 7.6
4 32 9 8
5 45 13 9
6 66 21 11
  • For example, the marginal cost of producing the fifth unit of output is 13.
  • The total cost of producing five units is 45.
  • But, for the marginal cost, we find, the change in total cost of producing the fifth unit.
    • Total cost of 4 units 32
    • Total cost of 5 units 45
    • Marginal cost of 5th unit = 13

Diagram Showing Marginal Cost

marginal-cost

Note:  Marginal cost is often shaped like this in the short term because of the law of diminishing marginal returns.

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