Marginal cost
Marginal cost is the extra cost of producing one more unit; in the short run, within spare capacity, it equals the variable cost per unit, since fixed costs do not change with a small change in output.
See it move
A workshop's €45,000 total cost at 3,000 units splits into €30,000 of fixed cost and €15,000 of variable cost. Variable cost per unit is €15,000 ÷ 3,000, or €5.00. With spare capacity, that €5.00 is also the marginal cost of the 3,001st unit, since fixed costs do not move.
The formula
Variables
- Marginal cost (€ per unit)
- Change in total cost (€)
- Change in quantity (units)
Measures the extra cost of producing one more unit; in the short run, within existing capacity, it equals the variable cost per unit since fixed costs do not change.
Check yourself
A workshop's cost records show that producing 4,000 units this month cost a total of €68,000, made up of €40,000 of fixed costs and €28,000 of variable costs. The factory has spare capacity. What is the marginal cost of producing one more unit?