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Asked Jan 16, 2019
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What is a marginal cost? (in detail)

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Expert Answer

Step 1

The Marginal cost is an additional cost of producing an additional unit of an output. In other words, The marginal cost of producing nth unit is the difference in total cost of producing n units of output and total cost of producing (n-1) units of output.

For example, the total cost of producing 5 units of output is $ 250 and the total cost of producing 4 units is $ 205, then the marginal cost of producing 5th unit of output is computed as under:

Marginal cost of producing 5th unit = Total cost of producing 5 units - Total cost of producing 4 units = 250 -205 = $ 45

 

 

Step 2

However, it must be kept in mind that the marginal cost should be computed for a single unit of output (i.e. per unit of output). This will be explained with another exmaple as under:

Suppose the total cost of producing 7 units of output is 340 and total cost of producing 5 units is $ 250.

Now, here, the incremental cost is $ 90...

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