marginal cost - Marginal cost - Wikipedia, the free...

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Marginal cost From Wikipedia, the free encyclopedia (Redirected from Marginal costs) In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. It is the cost of producing one more unit of a good. [1] Mathematically, the marginal cost (MC) function is expressed as the first derivative of the total cost (TC) function with respect to quantity (Q). Note that the marginal cost may change with volume, and so at each level of production, the marginal cost is the cost of the next unit produced. 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 which vary with the level of production, and other costs are considered fixed costs. A number of other factors can affect marginal cost and its applicability to real world problems. Some of these may be considered market failures. These may include information asymmetries, the presence of negative or positive externalities, transaction costs, price discrimination and others. Cost functions and relationship to average cost A typical Marginal Cost Curve Contents s 1 Cost functions and relationship to average cost s 2 Economies of scale s 2.1 Short and long run costs and economies of scale s 3 Externalities s 3.1 Negative externalities of production s 3.2 Positive externalities of production s 3.3 Social costs s 4 Other cost definitions s 5 See also s 6 References Page 1 of 5 Marginal cost - Wikipedia, the free encyclopedia 9/15/2009 http://en.wikipedia.org/wiki/Marginal_costs
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In the simplest case, the total cost function and its derivative are expressed as follows, where Q represents the production quantity, VC represents variable costs, FC represents fixed costs and TC represents total costs. Since (by definition) fixed costs do not vary with production quantity, it drops out of the equation when it is differentiated. The important conclusion is that marginal cost is not related to fixed costs. This can be compared with average total cost or ATC, which is the total cost divided by the number of units produced and does include fixed costs. For discrete calculation without calculus, marginal cost equals the change in total (or variable) cost that comes with each additional unit produced. For instance, suppose the total cost of making 1 shoe is $30 and the total cost of making 2 shoes is $40. The marginal cost of producing the second shoe is $40 - $30 = $10. Economies of scale
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marginal cost - Marginal cost - Wikipedia, the free...

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