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 ?
However, goods produced at nearly zero marginal cost have long been supplied profitably and rationed through markets more efficiently than they could have been without markets.
Theoretical models can be classified according to two different principles: the model of marginal cost (MC) and the model of full cost (FC).
Our case applications show that the first-stage (RA-based) estimates of suppliers' marginal costs are already closer to those made by the suppliers than the corresponding estimates based on DEA.
The factor a, which depends on the fuel price among other things, determines the relative marginal costs at which this discontinuity occurs.
Oil bulls will argue that marginal costs put a natural floor under the market at $90-100 per barrel for Brent (and a little lower for WTI) and help re-establish the case for taking a positive view for the market in the short to medium term.
This choice follows Gali and Gertler's (1999) observation that the sticky-price models used to derive NKPC imply that the correct driving variable for inflation is real marginal costs, which are well approximated by real average unit labor costs.
A substantial amount of work needs to be done before water agencies are even capable of charging prices that are based on the marginal costs of supply.
Section 3 provides empirical evidence from least-squares regressions of inflation on the discounted sum of future marginal costs as well as evidence from a vector autoregression (VAR) on the relative movement of output and inflation in response to a monetary policy shock.
With regard to his marginal cost pricing scheme, using TVA as an example, Hotelling predicted that, "Those who are insistent on avoiding a change in the distribution of wealth at all costs will object" (Hotelling 1938, p.
The marginal cost of increasing soil carbon by discontinuing crop production is higher than carbon dioxide credits currently trade for in Europe ($47 per metric ton [$43 per ton]).
With these observations in mind, suppose we consider an unexpected innovation that not only reduces a defendant's marginal costs of abatement but also simultaneously causes us to revise our expectations of future technological progress.
Marginal cost in economics is a theoretical concept, even a point-estimate of which is not easily ascertained.