Total Cost vs Marginal Cost
Total Cost and Marginal Cost are two Production & Costs concepts in AP Economics that students often mix up. Total Cost is the sum of all fixed and variable costs incurred by a firm in producing a given level of output. Marginal Cost is the additional cost incurred by producing one more unit of output. Here is how they compare side by side.
It represents the full economic expense of production and is calculated by adding fixed costs and variable costs at each output level. Total cost starts at fixed cost when output is zero.
It is calculated as the change in total cost divided by the change in quantity. Marginal cost typically decreases at first due to increasing marginal returns, then rises due to diminishing returns.
Total Cost vs Marginal Cost: A Running Total and Its Step Size
| Total Cost (TC) | Marginal Cost (MC) | |
|---|---|---|
| What it reports | Everything spent to reach a given output | The extra spending caused by one more unit |
| Formula | TC = FC plus VC | MC = change in TC divided by change in Q |
| How it sits in a table | A dollar amount on the row for each quantity | A dollar amount belonging between two rows |
| Value at zero output | Equals fixed cost | Not defined until the first unit is made |
| Direction of travel | Rises at every step, since another unit always costs something | Can fall and then rise as productivity changes |
| What it looks like on a graph | The height of the cost curve | The slope of that same curve |
| Which comparison it feeds | Set against total revenue to measure profit | Set against marginal revenue to pick the best quantity |
Marginal cost is a difference between rows, which is why it lands between them
Suppose a fixed bill of 120 dollars, so total cost at zero output is 120 dollars. Let total cost then read 220, 300, 360, 440, 560 and 720 dollars for one through six units. Subtracting each row from the one above gives marginal cost: 100, 80, 60, 80, 120 and 160 dollars. Every one of those figures describes a step, not a level, which is why cost tables print marginal cost offset between two quantities rather than on a quantity. Now use both columns for the decision they each serve. At a price of 120 dollars, the fifth unit adds exactly 120 dollars to cost and 120 dollars to revenue, so the firm is on the boundary. Producing four units gives revenue of 480 dollars against total cost of 440, a profit of 40 dollars; producing five gives revenue of 600 against total cost of 560, again 40 dollars. Total cost settled how much profit there was, and marginal cost settled where to stop. Confusing the two is the most common cost table error on a free response question. These figures are illustrative.
Adding up marginal costs rebuilds variable cost, never total cost
Students often assume the marginal cost column sums to total cost, and it does not. Add the six marginal figures above and you get 100 plus 80 plus 60 plus 80 plus 120 plus 160, which is 600 dollars. Total cost at six units is 720 dollars. The 120 dollar gap is the fixed bill, which was already on the books before the first unit existed and therefore never appeared in any step. What the marginal column actually reconstructs is variable cost, and it does so exactly: variable cost at six units is 600 dollars. The general statement is that total cost equals fixed cost plus the sum of marginal costs up to that quantity. This is the same idea as the area under a marginal cost curve representing variable cost rather than total cost, which shows up in producer surplus questions. If a table hands you only marginal cost and one total, you can rebuild every other row from it, and /calculate/total-cost walks through that reconstruction. For the wider set of short run cost relationships, see /micro/production-costs.
Frequently asked questions
What is the difference between total cost and marginal cost?
Total cost is the full amount spent to produce a given quantity, while marginal cost is the increase in that amount caused by producing one more unit. Total cost answers how much has been spent so far and marginal cost answers how much the next unit adds.
How do you calculate marginal cost from a total cost table?
Subtract the total cost at the lower quantity from the total cost at the next quantity and divide by the change in output. If total cost goes from 360 dollars at three units to 440 dollars at four units, marginal cost over that step is 80 dollars.
Why does adding up marginal costs not give total cost?
Because the sum of marginal costs equals variable cost, leaving out the fixed cost that was already owed before the first unit was produced. To recover total cost you add the fixed bill to that sum.
Live Production Costs graph. Drag the curves, or open the full version.
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