marginal cost


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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 ?
Coase, on the other hand, realized that though the marginal cost of such goods would often be nearly zero, firms likely would find ways to cover the fixed costs, and the resulting efficiency meant it was still better to use market mechanisms.
An Empirical Test of Marginal Cost Pricing," NBER Working Paper No.
In what follows we show that these commonly available supplier characteristics can be sufficient to reliably reveal the supplier's bidding policy and eventually the underlying marginal cost.
Finally, we establish a generalized Duopoly game model under the setting of incomplete information on marginal cost and compare the corresponding allocation results with that obtained under the setting of complete information on marginal cost.
4 shows that it is only optimal to implement lightweighting technology if its marginal cost is less than approximately $9/kg with very expensive efficiency measures and $4/kg with cheap efficiency measures.
Another implication of our results is that governments should use expenditure restraint to rebalance their budgets because it is likely that some expenditure programs cannot generate benefits at the margin that would cover the marginal cost of financing them.
Therefore, to contrast our results with the available evidence, one should investigate how our marginal cost measures correlate with the next period's actual inflation rate and the subjective expectation of inflation rate.
producing at the point where price equals marginal cost.
Since marginal cost "drives" inflation in the basic NKPC, this makes it hard for the model to match the data.
Next we have estimated the inflation adjustment equation both with output gap and real marginal cost as determinant of inflation and find that real marginal cost and not the output gap is driving force of inflation.
Firms should always operate in the region of output where short-run marginal cost is upward-sloping, represented by the dotted lines in the figure.
While the firm-determined product price exceeds marginal cost at the profit-maximizing quantity of output for a ppm, marginal revenue will equal marginal cost there; similarly, although the firm-determined wage is less than marginal revenue product at the profit-maximizing amount of labor for a rpm, marginal labor cost will equal marginal revenue product there.

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