In economics, define marginal cost.

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Multiple Choice

In economics, define marginal cost.

Marginal cost is the additional cost of producing one more unit of output. It focuses on how much extra resources—like materials and labor—are needed to add another unit, holding everything else steady. You can think of it as the change in total cost when quantity rises by one unit (ΔTC/ΔQ), or, in continuous terms, the derivative dTC/dQ. This matters because firms compare marginal cost to marginal revenue to decide whether to expand production, and marginal cost can rise with output due to diminishing returns. The other options don’t fit because total fixed cost doesn’t change with output, so it’s not the cost of an extra unit; average cost per unit spreads total cost over all units produced, not the cost of the next unit; and the phrase “cost saved by reducing output by one unit” describes the savings from cutting production, which is not the definition of marginal cost (marginal cost is about adding, not saving).

Marginal cost is the additional cost of producing one more unit of output. It focuses on how much extra resources—like materials and labor—are needed to add another unit, holding everything else steady. You can think of it as the change in total cost when quantity rises by one unit (ΔTC/ΔQ), or, in continuous terms, the derivative dTC/dQ. This matters because firms compare marginal cost to marginal revenue to decide whether to expand production, and marginal cost can rise with output due to diminishing returns.

The other options don’t fit because total fixed cost doesn’t change with output, so it’s not the cost of an extra unit; average cost per unit spreads total cost over all units produced, not the cost of the next unit; and the phrase “cost saved by reducing output by one unit” describes the savings from cutting production, which is not the definition of marginal cost (marginal cost is about adding, not saving).

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