Marginal Cost
Plain definition
The additional cost of producing one more unit of output — the change in total cost divided by the change in quantity.
In economics
Marginal cost (MC) typically falls at first as fixed costs are spread and workers specialize, then rises under diminishing returns, giving the MC curve its U-shape. MC intersects ATC and AVC at their minimum points — a firm should expand output while MC is below price and stop where MC equals price.
Example
If total cost rises from 10,120 when output rises from 5,000 to 5,010 loaves, marginal cost is 12 per loaf.
Marginal cost is confused with average cost. Average cost (ATC) is total cost per unit overall; marginal cost is the cost of the next unit. When MC is below ATC, ATC falls; when MC is above ATC, ATC rises — this is why MC cuts ATC at its minimum.