Marginal cost

In general, a cost is what a firm, individual, or society pays in order to produce or consume goods and services. It is the consumption of resources such as labour time, capital, materials, fuels, etc. In economics, all resources are valued at their opportunity cost, which is the value of the alternative use of the resources. Costs are defined in a variety of ways and under a variety of assumptions that affect their value. The opposite of a cost is a benefit and often both are considered together. For example, net cost is the difference between gross costs and benefits.

Marginal cost is the cost of adding one additional unit of output or the cost of increasing an activity. It is the change in the total cost ($\mathrm{\Delta }$TC) divided by the change in output ($\mathrm{\Delta }$Q). This can also be expressed as the variable cost ($\mathrm{\Delta }$VC) divided by the change in output ($\mathrm{\Delta }$Q). This is because the fixed cost doesn't change, but the total cost (TC) will alter in sync with the variable cost (VC).

MC= $\frac{\mathrm{\Delta }TC}{\mathrm{\Delta }Q}$

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MC= $\frac{\mathrm{\Delta }VC}{\mathrm{\Delta }Q}$

Essentially, this is how much it costs to produce or consume one more unit of something. To see what this looks like in the context of a firm, see costs for a firm.

Figure 1. This is a cost curve, it shows how price changes in response to quantity.

Figure 1 on the right compares marginal cost (MC) with average total cost (ATC) and marginal revenue (MR). As the average total cost declines, the cost of one additional unit (marginal cost) is less. As average total cost increases, the marginal cost is more. Average total cost is at a minimum when it is equal to the marginal cost.

For Further Reading

• Cost
• Variable cost
• Total cost
• Costs for a firm
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