marginal cost

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Related to incremental costs: differential cost, Sunk 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 ?
Further, incremental costs for total health care expenditure may differ from the patterns documented here for Medicare.
(a) Beginning with the Regulatory Plans (required under Executive Order 12866 of September 30, 1993, as amended, or any successor order) for fiscal year 2018, and for each fiscal year thereafter, the head of each agency shall identify, for each regulation that increases incremental cost, the offsetting regulations described in section 2(c) of this order, and provide the agency's best approximation of the total costs or savings associated with each new regulation or repealed regulation.
"By using incremental costs, our frontline people will now be able to see the impact of adding new accounts," notes Canina.
From Exhibit 1, a transfer price of $60 per hour would result in a profit of $4,500, as follows: Price $42,000 Heating System Installation [125 hours x $60] (7,500) Other Incremental Cost (30,000) Total Cost $(37,500) Profit $4,500
The Evaluation of Incremental Cost Assessment found that incremental reasoning underpins the global environmental focus of GEF project design.
Pegylated interferon plus ribavirin has a $35.000 incremental cost per quality-adjusted life-year (QALY) gained, according to data that the investigators gathered from other studies of hepatitis C virus (HCV) and incorporated into a Markov model.
Further, the incremental cost of an occupation following combat operations could vary from about $1 billion to $4 billion a month.
* The incremental costs of a special program within a private school for students with a written diagnosis of attention deficit hyperactivity disorder (Letter Ruling 9852015).
Through informal discussions, they are finding any incremental costs of utilizing green technology over conventional designs are nominal in more energy efficient buildings.
At the other extreme, the incremental costs of secondment for educational or training purposes must be borne by the sending company.
This includes incremental costs of acquiring, constructing or installing the assets that are incurred in transactions with independent third parties.
Kosniak usedzztwo estimating methodologies: a top-down approach using the Persian Gulf War and Kosovo as a base and a bottom-up estimate of incremental costs based on things like flying hours and weapon prices.

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