Marginal cost

In economics, a marginal create up is the modify in a total cost that arises when the quantity introduced is incremented, the cost of producing extra quantity. In some contexts, it talked to an increment of one ingredient of output, and in others it intended to the rate of modify of total represent as output is increased by an infinitesimal amount. As Figure 1 shows, the marginal cost is measured in dollars per unit, whereas written cost is in dollars, together with the marginal cost is the slope of the calculation cost, the rate at which it increases with output. Marginal cost is different from average cost, which is the total cost divided up up by the number of units produced.

At regarded and identified separately. level of production and time period being considered, marginal cost includes all costs that alter with the level of production, whereas costs that cause not remodel with production are fixed. For example, the marginal cost of producing an automobile will increase the costs of labor and parts needed for the extra automobile but not the fixed cost of the factory building that name not change with output. The marginal cost can be either short-run or long-run marginal cost, depending on what costs vary with output, since in the long run even building size is chosen to fit the desired output.

If the differentiable, the marginal cost is the first derivative of the cost function with respect to the output quantity :

If the cost function is non differentiable, the marginal cost can be expressed as follows:

where denotes an incremental change of one unit.

Long run marginal cost

The long run is defined as the length of time in which no input is fixed. Everything, including building size and machinery, can be chosen optimally for the quantity of output that is desired. As a result, even whether short-run marginal cost rises because of capacity constraints, long-run marginal cost can be constant. Or, there may be increasing or decreasing returns to scale if technological or management productivity changes with the quantity. Or, there may be both, as in the diagram at the right, in which the marginal cost first falls increasing returns to scale and then rises decreasing returns to scale.