marginal cost

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Related to Marginal costs: Marginal revenue, Opportunity costs

Marginal cost

The increase or decrease in a firm's total cost of production as a result of changing production by one unit.

Marginal Cost

The total cost to a company to produce one more unit of a product. The marginal cost varies according to how many more or fewer units a company wishes to produce. Increasing production may increase or decrease the marginal cost, because the marginal cost includes all costs such as labor, materials, and the cost of infrastructure. For example, if a widget manufacturer increases the number of widgets it produces, it may need to buy more material, but the costs of labor and factory maintenance remain the same, and are spread out over a greater number of widgets. This may reduce the marginal cost. On the other hand, if the manufacturer hires more workers and builds another factory, it will likely increase the marginal cost. It is also known as the incremental cost.

marginal cost

The additional cost needed to produce or purchase one more unit of a good or service. For example, if a firm can produce 150 units of a product at a total cost of $5,000 and 151 units for $5,100, the marginal cost of the 151st unit is $100. Industries with sharply declining marginal costs tend to be made up of firms that engage in price wars to gain market share. For example, the airlines often discount fares to fill empty seats with customers from competing airlines. Also called incremental cost.

marginal cost

the extra cost that is incurred by a firm in increasing OUTPUT by one unit. Given that FIXED COSTS do not vary with output, marginal costs are entirely marginal VARIABLE COSTS. Marginal cost generally includes the DIRECT MATERIALS and DIRECT LABOUR COST of a product along with VARIABLE OVERHEADS. See MARGINAL REVENUE.
Marginal costclick for a larger image
Fig. 114 Marginal cost.

marginal cost

the extra cost (addition to TOTAL COST) that is incurred in the SHORT RUN in increasing OUTPUT by one unit. Given that FIXED COSTS do not vary with output, marginal costs (MC) are entirely marginal VARIABLE COSTS. MC falls at first, reflecting increasing RETURNS TO THE VARIABLE-FACTOR INPUT so that costs increase more slowly than output, as shown in Fig. 114. However, MC then rises as decreasing returns set in so that costs increase faster than output.

MC together with MARGINAL REVENUE determine the level of output at which the firm attains PROFIT MAXIMIZATION.

References in periodicals archive ?
I will also give him a pass for leaving the impression that nearly zero marginal cost makes a good nearly free.
Thus, residential and commercial customers in the United States may already be facing prices that are above social marginal cost.
As mentioned above, our approach is based on the fact that e-RA bids reveal some information about the suppliers' marginal costs (Zhang and Jin 2007), which may enhance the knowledge base of marginal costs beyond that introduced in previous research.
It is needed to point out that in Section 3, the allocation results of output and the water supply for two firms are obtained on the condition that the marginal cost information of two firms is common knowledge; that is, one firm knows the exact marginal cost of the opposite firm, which strictly restricts the applicable area of the game model established in Section 3 under the setting of complete information.
powertrain] as a function of marginal costs as shown in Equation (8):
Many oil analysts include tax and revenue requirements in their estimate of marginal costs on the grounds that OPEC producers and other states need certain minimum prices and revenues to balance their budgets and avoid social unrest.
While lagged measures of marginal costs (unit labor costs and output) and lagged expectations remain insignificant, lagged inflation enters significantly.
Costs are understated, and prices fail to reflect marginal costs, leading to excess consumption, overextended and undermaintained infrastructure, and stifled innovation.
The review of empirical studies distinguishes between papers in which marginal costs are included in the observations and, hence, are directly used in the estimation and studies that treat marginal costs as a latent variable.
produce at the point where marginal cost equals marginal revenue.
Economic models suggest that firms should produce where marginal cost is equal to marginal revenue (Awh 1976, Kamerschen and Valentine 1977), regardless of the market type.