Marginal cost is how much it costs to make one more thing. If you have a lemonade stand and it costs you $10 to make 100 cups and $12 to make 101 cups, then the extra cost for making one more cup is $2. That $2 is the marginal cost.
What’s on This Page?
This page includes a calculator to find marginal cost, easy formulas, step-by-step instructions, examples, and questions and answers to help you understand marginal cost.
Calculator
Formula
Marginal Cost (MC) = Change in Total Cost (ΔTC) ÷ Change in Quantity (ΔQ)
Where:
- Marginal Cost (MC) is the additional cost of producing one more unit.
- Change in Total Cost (ΔTC) is the change in your total cost of production.
- Change in Quantity (ΔQ) is the change in how many things you made.
How to Calculate Marginal Cost – step by step
Step 1 – Find the change in total cost (ΔTC). This is the difference in cost between making more things and what you spent before.
Step 2 – Find the change in how many things you made (Q). This is how many extra things you made.
Step 3 – Divide the change in total cost by the change in how many things you made to get the marginal cost.
Example
A coffee shop made 20,000 cups of coffee one month for $60,000. The next month, they made 21,000 cups for $64,000.
Step 1: Find the change in total cost (ΔTC): $64,000 – $60,000.= $4,000
Step 2: Find the change in cups made (Q): 21,000 – 20,000 = 1,000
Step 3: Calculate marginal cost (MC): $4,000 ÷ 1,000 = $4
Result: The marginal cost is $4. This means it costs $4 to make one additional cup of coffee.
Definition – What is Marginal Cost?
Marginal cost is how much more it costs to make one extra thing. It’s important because it helps businesses decide if making more stuff is worth it. If the cost of making one more item is lower than what you can sell it for, then it’s a good idea to make more.
Average Cost vs. Marginal Cost
Average cost is the total cost divided by how many things you made, showing the cost for each item on average.
Total Cost vs. Marginal Cost
Total cost is everything you spent to make all your items.
Marginal Product vs. Marginal Cost
Marginal product is how many extra items you get from using more materials or workers.
Marginal product and marginal cost are often analyzed together.
Marginal Revenue vs. Marginal Cost
Marginal revenue is the money you bring in from selling one more item.
Marginal revenue and marginal cost are often used together. Firms try to find a production level right up to where marginal revenue and marginal cost are equal.
Marginal Cost Tables
Marginal cost, based on an increase of 1,000 units
| Change in Total Cost | Marginal Cost |
| $10 | $0.01 |
| $100 | $0.10 |
| $1,000 | $1 |
| $5,000 | $5 |
| $10,000 | $10 |
| $50,000 | $50 |
| $100,000 | $100 |
| $250,000 | $250 |
| $500,000 | $500 |
| $1,000,000 | $1,000 |
Marginal cost, assuming a change in total cost of $100,000
| Change in Units Produced | Marginal Cost |
| 1 | $100,000 |
| 10 | $10,000 |
| 100 | $1,000 |
| 1,000 | $100 |
| 5,000 | $20 |
| 10,000 | $10 |
| 50,000 | $2 |
| 100,000 | $1 |
| 250,000 | $0.40 |
| 1,000,000 | $0.10 |
Marginal Cost FAQs
Q: Can marginal cost go down as you make more?
A: Yes, at first it might go down because making more is efficient. But eventually, it goes up because making too much can get harder and more expensive.
Q: Why does marginal cost eventually rise?
Because when you make too many items, things get crowded or resources are stretched thin, making each new item more costly.
Q: What happens if marginal cost is higher than price?
The business loses money on each extra item. In this case, it might be better to make fewer items.
Q: Does marginal cost affect how much a business makes?
Yes, businesses use marginal cost to decide how many items to produce to stay profitable.
Q: Can marginal cost stay the same?
Sometimes, but usually only for a while. In most cases, it changes as production changes.
Q: How is marginal cost used in decision-making?
Sometimes, but usually only for a while. In most cases, it changes as production changes.
Q: Is it possible for marginal cost to be negative?
This is rare, but it could happen if something special like a discount or subsidy makes producing more cheaper.
References and more resources
- Wikipedia contributors. (2024d, August 22). Marginal cost. Wikipedia. https://en.wikipedia.org/wiki/Marginal_cost
- Khan Academy. (n.d.-e). https://www.khanacademy.org/economics-finance-domain/microeconomics/firm-economic-profit/average-costs-margin-rev/v/marginal-revenue-and-marginal-cost
- Jacob Clifford. (2014b, October 8). Short-Run Cost Curves (Part 3)- Micro Topic 3.2 [Video]. YouTube. https://www.youtube.com/watch?v=C3m9FC3T3vw
- Kacapyr, E., & Redelsheimer, J., & Musgrave, F. Barron’s AP Microeconomics / Macroeconomics (6th ed.). (2018). United States of America: Barron’s. ISBN: 978-1-4380-1065-6. Page 94.
- Pindyck, R., & Rubinfeld, D., Microeconomics (8th ed.), (2013). United States of America: Pearson. ISBN 13: 978-0-13-285712-3. Page 236.
- Nicholson, W., & Snyder, C. Microeconomic Theory – Basic Principles and Extensions (10th ed.). (2008). United States of America: Thomas South-Western. ISBN 13: 978-0-324-42162-0. Page 331.
- Greenlaw, S., & Shapiro, D., Principles of Microeconomics 2e. (2018). Houston: Rice University OpenStax. ISBN 13: 978-1-947172-35-7. Page 166.