7.6 : העלות השולית I

Marginal Cost is the increase in total cost that arises from producing one more unit of a good or service.

However, the total cost of a good is comprised of fixed and variable costs, where fixed costs do not change when output changes. So, marginal cost is not affected by fixed cost.

Whereas variable cost changes when the firm produces one more unit. This means the marginal cost can also be defined as the additional variable cost from producing one more output unit.

Consider a t-shirt printing business. The fixed costs, like rent and salaries, are $1000 per month. If one hundred T-shirts are printed, the total cost, including materials, energy, and labor, comes to $1500. But to produce one more T-shirt, the total cost rises to $1510. Here, the marginal cost of producing the 101st T-shirt is ten dollars.

Determining marginal cost is crucial as it helps businesses make decisions about optimal production levels, set prices effectively and maximize profits, where marginal cost equals marginal revenue.