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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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View Full DocumentIn 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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 Fall '10
 piyush

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