15 Facts About Marginal cost

In economics, the marginal cost is the change in the total cost that arises when the quantity produced is incremented, the cost of producing additional quantity.

Marginal cost is different from average cost, which is the total cost divided by the number of units produced.

At each level of production and time period being considered, marginal cost includes all costs that vary with the level of production, whereas costs that do not vary with production are fixed.

The marginal cost of producing an automobile will include the costs of labor and parts needed for the additional automobile but not the fixed cost of the factory building that do not change with output.

The marginal cost can be either short-run or long-run marginal cost, depending on what costs vary with output, since in the long run even building size is chosen to fit the desired output.

Short run marginal cost is the change in total cost when an additional output is produced in the short run and some costs are fixed.

The derivative of fixed cost is zero, and this term drops out of the marginal cost equation: that is, marginal cost does not depend on fixed costs.

Instance, suppose the total Marginal cost of making 1 shoe is $30 and the total Marginal cost of making 2 shoes is $40.

The marginal cost of producing shoes decreases from $30 to $10 with the production of the second shoe.

Marginal cost is not the cost of producing the "next" or "last" unit.

Economies of scale are said to exist if an additional unit of output can be produced for less than the average of all previous units – that is, if long-run marginal cost is below long-run average cost, so the latter is falling.

Where there are economies of scale, prices set at marginal cost will fail to cover total costs, thus requiring a subsidy.

Great importance in the theory of marginal cost is the distinction between the marginal private and social costs.

Marginal social cost is similar to private cost in that it includes the cost of private enterprise but any other cost to parties having no direct association with purchase or sale of the product.

Say the starting point of level of output produced is n Marginal cost is the change of the total cost from an additional output [th unit].