marginal cost

(redirected from Marginal cost pricing)
Also found in: Dictionary, Thesaurus, Medical, Encyclopedia.

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 knew I wanted marginal cost pricing, but that was regulatory.
If one observes marginal cost pricing in laboratory sessions, this must due directly to competition among sellers rather than buyers' market power.
Once experience with relatively straightforward applications of marginal cost pricing develops, more sophisticated efficient-rate structures could be considered.
Marginal cost pricing may also be harmful in contexts outside of
For the national economy as a whole, marginal cost pricing means that scarce resources are being used in the most productive way possible, as no alternative use of these resources would yield higher benefits, resulting in the maximum possible contribution to the national economy.
The time is ripe for a reexamination of the efficacy of the marginal cost pricing doctrine for other states that have adopted it, as well as for California.
Now suppose there is a constant mark-up, over marginal cost pricing structure.
Packed with case studies and practical real-world examples, Electricity Marginal Cost Pricing Principles allows regulators, engineers and energy economists to choose the pricing model that best fits their individual market.
Finally, marginal cost pricing cannot be implemented if municipalities are unmetered.
For future use, let us call this regulation the marginal cost pricing regulation and the regulation in the text the average cost pricing regulation.
Charging for local services has the potential to be efficient but only if marginal cost pricing is used.
Despite these demonstrations, the subsequent literature on uniform two-part tariffs for the most part considers below marginal cost pricing a thoroughly atypical outcome.