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