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 ?
First, using the example of a bridge, the marginal cost of using a bridge is effectively zero only until some capacity constraint is reached.
Marginal cost pricing is advocated with the aim of encouraging efficient use of the railway network (Bernardinoa, Hrebicekb, & Marquese, 2010).
Then from equation (4) we find the marginal cost of the supplier,
A review of cost estimates for different lightweighting and energy efficiency measures is now presented, an attempt to fit representative marginal cost functions for them is made, and the methodology derived in this paper to find the optimal combinations of lightweighting and efficiency improvement is demonstrated and tested.
To illustrate how this phenomenon affects the calculation of the marginal cost of public funds, because the 10 percent tax rate increase generates only an 8 percent increase in tax revenue, the cost of raising that last, or marginal, dollar of tax revenue is 10/8, or 1.
Right-hand side errors could arise because we replaced the mean expected inflation by the sample average across forecasters or because of our approximate real marginal cost measures.
Solving this difference equation forward, one can see that current and expected future marginal cost are driving today's inflation.
Although Coase did not cite Dupuit directly, and although it does not appear that Dupuit would insist that every tub must stand on its own bottom, the essence of Coase's scheme would seem to rest on the possibility of financing the marginal cost pricing of any particular good from the surplus (net utility) generated by that good.
Fourth, real marginal cost and not the output gap is the factor affecting inflation.
Thus, the efficient level of pollution abatement sets the marginal cost of pollution control equal to the marginal damage of the pollution emitted.
18) Specifically, the change in the price to consumers (DP) relative to the change in marginal cost (DMC) stemming from the imposition of the per unit tax is given by the equation: (19)
That makes the marginal cost for each additional kid $109,000 a year.

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