Marginal Cost
The increase in total production cost from producing one additional unit of output.
What is Marginal Cost?
Marginal cost is the change in a firm's total cost that results from producing one additional unit of output. It is a central concept in economics and business decision-making: profit-maximizing firms produce up to the point where marginal cost equals marginal revenue. When marginal cost rises above the market price, further production destroys value. In industries with near-zero marginal cost — like software — scale economics are exceptionally powerful.
Example
A factory producing 10,000 widgets incurs $200,000 in total costs. Producing one more widget raises total cost to $200,022. The marginal cost of that unit is $22 — below the $30 selling price, so production remains profitable at that level.