Marginal cost

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In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good If the good being produced is infinitely divisible, so the size of a marginal cost will change with volume, as a non-linear and non-proportional cost function includes the following:

  • variable terms dependent to volume,
  • constant terms independent to volume and occurring with the respective lot size,
  • jump fix cost increase or decrease dependent to steps of volume increase.

For more information on exchange rates and costs, please refer to this guide Import Export Exchange Rates and Costs. In practice the above definition of marginal cost as the change in total cost as a result of an increase in output of one unit is inconsistent with the calculation of marginal cost as MC=dTC/dQ for virtually all non-linear functions. This is as the definition MC=dTC/dQ finds the tangent to the total cost curve at the point q which assumes that costs increase at the same rate as they were at q. A new definition may be useful for marginal unit cost (MUC) using the current definition of the change in total cost as a result of an increase of one unit of output defined as: TC(q+1)-TC(q) and re-defining marginal cost to be the change in total as a result of an infinitesimally small increase in q which is consistent with its use in economic literature and can be calculated as dTC/dQ.

In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit. If producing additional vehicles requires, for example, building a new factory, the marginal cost of those extra vehicles includes the cost of the new factory. In practice, the analysis is segregated into short and long-run cases, and over the longest run, all costs are marginal. At each level of production and time period being considered, marginal costs include all costs that vary with the level of production, and other costs are considered fixed costs.

If the cost function is differentiable joining, the marginal cost is the cost of the next unit produced referring to the basic volume.



References:

1.http://en.wikipedia.org/wiki/Marginal_cost


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