In economics, marginal cost describes the extra cost of producing one additional unit of a product.
It is calculated as the change in total cost divided by the change in quantity produced. If total cost rises from $10,000 to $10,120 when output increases by 10 units, the marginal cost over that range is $12 per unit. The calculation can be made over a small interval or expressed using derivatives in a continuous model.
Marginal cost may include additional labor, materials, energy, shipping, or other resources required for the extra output. Fixed costs such as rent do not change with each additional unit in the short run, although production decisions can eventually require new facilities or equipment.
Marginal cost is not the same as average cost. Average cost spreads total cost across all units, while marginal cost concerns the next unit. Businesses compare marginal cost with marginal revenue when evaluating output, but real decisions also consider capacity, quality, demand, and long-term strategic effects.