How to Calculate Marginal Cost
Marginal cost equals the change in total cost divided by the change in quantity: MC = ΔTC ÷ ΔQ.
The Marginal Cost formula
Calculator
Enter total cost at two output levels and get marginal cost plus how it pulls average cost.
Total cost at the smaller output level.
Total cost at the larger output level. Using variable cost for both entries gives the same answer, since fixed cost does not change.
Each extra unit over this range costs $30 to produce. Fixed cost cancels out, so this is the change in variable cost per unit.
- Change in total cost
- $60
- Change in quantity
- 2
- Average total cost at the new output
- $46.67
- Effect on average total cost
- MC is below ATC, so ATC is falling
How to calculate Marginal Cost, step by step
- 1Find total cost at each output level. From the cost table or TC = FC + VC.
- 2Take the change in total cost. ΔTC between the two output levels. Using ΔVC gives the same answer since FC is constant.
- 3Divide by the change in quantity. MC = ΔTC ÷ ΔQ, the cost of producing one more unit.
Worked example: Marginal Cost
Total cost is $500 at 10 units and $560 at 12 units: MC = (560 − 500) ÷ (12 − 10) = 60 ÷ 2 = $30 per unit over that range.
Per unit, not per step
The most common error on this page is stopping after the subtraction. Total cost rising from $500 to $560 is a $60 increase, but if that covered two extra units the marginal cost is $30, not $60. Divide by the change in quantity every time, even when it looks like one unit.
A second point follows from the formula. Marginal cost can be computed from total cost or from variable cost and the answer is identical, because fixed cost does not change when output does and cancels in the subtraction. So a question giving only variable costs has given you everything you need.
That is also why marginal cost says nothing about whether a firm is profitable. It describes the cost of the next unit, and profitability depends on fixed costs the marginal figure deliberately ignores.
The shape, and why it cuts the averages at their lowest points
Marginal cost usually falls at first and then rises. The fall comes from specialisation as the first extra workers let a firm divide up tasks. The rise comes from diminishing marginal returns: with capital fixed, each extra worker has less equipment to work with and adds less output than the one before, so each extra unit costs more.
Diminishing returns is a short-run idea, and that is what makes marginal cost a short-run curve. In the long run everything can change, which is why long-run average cost is governed by returns to scale instead.
Marginal cost passes through the minimum of both AVC and ATC, and the reason is arithmetic. While the next unit costs less than the current average, it pulls the average down; once it costs more, it pushes the average up. So each average turns exactly where marginal cost crosses it, and a diagram showing MC cutting an average curve anywhere else is wrong.
Marginal Cost questions
Why does marginal cost eventually rise?
Diminishing marginal returns: as more workers share fixed capital, each added worker adds less output, so each added unit of output costs more to produce.
Where does MC cross ATC and AVC?
At their minimum points. When MC is below an average, it pulls the average down; when above, it pulls it up, so MC intersects both curves at their lowest points.
Why does profit maximization use MC?
Firms produce where MR = MC: each unit up to that point adds more to revenue than to cost, and each unit beyond it costs more than it earns.
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