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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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References in periodicals archive

Using Calvo-type price adjustment, Woodford (2003) shows that the aggregation of the linearized optimal price adjustment rules for the individual firms yields an expression in current and expected future inflation and a measure of aggregate marginal cost, mc,

Introduction to the New Keynesian Phillips curve

According to this Hybrid NKPC current inflation is determined by output gap (or real marginal cost), previous period's inflation and future expected inflation.

New Keynesian Phillips curve for Pakistan

In many cases marginal cost is either theoretically

A proposed solution to the problem of parallel pricing in oligopolistic markets

6 Marginal cost and R&D expenditure, symmetric duopoly

Product Reliability, R&D, and Manufacturing Cost Shocks

The key feature of those models, which we focus on directly here, is the assumption of constant marginal cost, which allows domestic and foreign markets to be treated as independent markets in the analysis.

Capacity constrained exporters: identifying increasing marginal cost

Their risk perception is higher in the current market scenario," says a private sector banker.A year ago, the RBI's own working group on pricing of credit had talked about the difficulties in shifting to the marginal cost of funds.

Divided We Stand

If firms in the competitive sector are similar, the price charged to final users ends up equal to the marginal cost of each firm.

Theoretical and viable charging models for railway infrastructure access: an European survey

The MNE prefers to employ only one transfer price, and as in Regime 3 it incurs costs of transfer pricing to the extent that the chosen transfer price deviates from its marginal cost. In essence, tax authorities again desire to see the transfer price computed according to the "cost-plus method", implying that the MNE needs to spend resources to defend a differing transfer price.

Precios de transferencia: roles y regimenes

One of the over-arching themes in these studies is the high economic cost of departures from marginal cost pricing.

Pricing energy efficiently

Similarly to Giokas (1997), we also employ a combination of two models (stages) to determine a supplier's 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.

Enhancing strategic supply decisions by estimating suppliers' marginal costs

Inspired and motivated by the above results in this research field, in this paper, we establish two duopoly game models of product quantity and the water supply for two firms to produce differentiated product under the settings of complete information and incomplete information, respectively and obtain the corresponding allocation results of product quantity and the water supply under the condition that the market power exists, and next, we compare the allocation results obtained under the setting of incomplete information on marginal cost with that obtained under the setting of complete information on marginal cost.

Duopoly game models of water supply in the presence of market power