How to Calculate Marginal Cost
Marginal cost equals the change in total cost divided by the change in quantity: MC = ΔTC ÷ ΔQ.
Formula
Steps
- 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
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.
Frequently asked 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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