Economics
Marginal Cost
Quick fact
Marginal cost is calculated by dividing the change in total cost by the change in quantity produced.
Why this is interesting
Imagine you're running a bakery, and your last cake cost $10 to make. Now imagine the next one—would it still be $10? Probably not. Why? Because of marginal cost.
Read the full explanation
Understanding Marginal Cost
Marginal cost refers to how much it costs to produce just one more unit of a product. It’s like asking: 'What's the extra expense if I make one additional item?' This helps businesses determine whether producing more is worth the added cost.
A deeper explanation
Marginal cost captures the incremental cost associated with increasing production by one unit. If the marginal cost is lower than the price a business can charge, it makes sense to produce more. However, if the marginal cost exceeds the revenue from selling that extra unit, the business should consider stopping production. This concept is central to decision-making in economics and operations management.