Marginal cost

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Marginal cost is the additional cost to a manufacturer when he increases the number of goods he makes.

It is a general principle of economics that a (formative) producer should always produce (and buy) the last unit if the marginal cost is less than the market price. As the market price will be directed by supply, it leads to the conclusion that marginal cost equals Marginal Revenue. These general principles are subject to a number of other factors and exceptions, but marginal cost and marginal cost pricing play a central role in economic definitions of efficiency.

Mathematically, the marginal cost function is expressed as the gradient of the total cost (TC) function with respect to quantity. Note that the marginal cost may change with density, and so at each level of production, the marginal cost is the cost of the last unit produced.

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