Marginal Cost

Marginal cost is a term used in economics and accounting to describe the cost of producing one extra unit of goods or services above what is currently being produced. For example, if it costs a firm $500 to produce 10 TVs and $550 to produce 11, the marginal cost is $50. Marginal cost will usually vary with output. If marginal cost is decreasing, then it is desirable to increase output until marginal cost is either remaining constant or increasing. If marginal revenue is equal to marginal cost, then this is deemed to be the optimum production level (i.e. the gains of producing one additional unit are equal to the costs).

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Retained Earnings
• Fraud Triangle
• Accounts Receivable Turnover Ratio
• Marginal Cost Formula
• Nash Equilibrium