Marginal Cost (MC)
Definition
Marginal cost refers to the additional cost incurred by a firm when producing one more unit of a good or service. It takes into account the change in total cost divided by the change in quantity produced.
Analogy
Imagine you're baking cookies and you need to buy ingredients. The marginal cost is like the extra amount you have to spend on buying an additional bag of flour, after considering how much flour you already have.
Related terms
Average Variable Cost (AVC): AVC is the variable cost per unit of output. It is calculated by dividing total variable costs by the quantity produced.
Total Cost (TC): TC represents all costs incurred by a firm, including both fixed and variable costs, to produce a given quantity of output.
Economies of Scale: This term refers to the situation where a firm experiences lower average costs as it increases its level of production in the long run due to factors such as specialization and increased efficiency.
"Marginal Cost (MC)" appears in:
Study guides (3)
Additional resources (2)
Practice Questions (4)
- What happens to average total cost (ATC) when marginal cost (MC) is less than ATC?
- What does the marginal cost (MC) curve represent?
- What happens to average total cost (ATC) when marginal cost (MC) increases above ATC?
- A company's marginal cost (MC) initially decreases, reaches a minimum point, and then starts increasing. What could be a possible explanation for this pattern?
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