< Back to Glossary# Marginal cost calculation

To calculate marginal cost, you need to determine the change in total cost and the change in the quantity of goods or services produced. Here's an example:

Suppose a company produces 100 units of a good and incurs a total cost of $1,000. If the company produces 101 units of the good, the total cost increases to $1,010. To calculate the marginal cost of producing the 101st unit, you would need to divide the change in total cost by the change in the quantity of goods produced:

Marginal cost = (Total cost at 101 units - Total cost at 100 units) / (Quantity at 101 units - Quantity at 100 units)

= ($1,010 - $1,000) / (101 - 100)

= $10,Therefore, the marginal cost of producing the 101st unit is $10.

Note that marginal cost is typically not constant and can change as a company increases or decreases production. As a result, it is important for a company to regularly calculate its marginal cost to ensure that it is making cost-effective production decisions.

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