Marginal cost

Definition

Marginal cost is the derivative of the total cost function with respect to quantity. It represents the cost of producing one additional unit of a good or service.

5 Must Know Facts For Your Next Test

1. The marginal cost can be found by taking the first derivative of the total cost function.
2. When graphed, marginal cost curves typically have a U-shape due to economies and diseconomies of scale.
3. The point where marginal cost equals marginal revenue is crucial for profit maximization in economics.
4. Marginal cost can be used to optimize production levels and pricing strategies.
5. If marginal cost is less than average total cost, average total cost is decreasing.

Review Questions

• What is the mathematical representation of marginal cost?
• How does understanding marginal cost help in determining optimal production levels?
• What happens to average total cost when marginal cost is below it?

Related terms

Total Cost: The sum of fixed costs and variable costs incurred by producing goods or services.

Average Cost: The total cost divided by the number of goods produced; also known as unit cost.

Marginal Revenue: The additional revenue generated from selling one more unit of a product or service.