From the change in total cost and output, compute the marginal cost of producing one more unit.
Input Data
Results
At a glance:Marginal cost is the change in total cost divided by the change in quantity produced, representing the cost of one additional unit.
Formula
marginalCost = (newCost - initialCost) / (newQuantity - initialQuantity)
$$\text{MC} = \dfrac{\Delta \text{Total Cost}}{\Delta \text{Quantity}} = \dfrac{TC_{\text{new}} - TC_{\text{old}}}{Q_{\text{new}} - Q_{\text{old}}}$$How to Use
- Enter the total cost before the increase.
- Enter the total cost after the increase.
- Enter the output quantities before and after.
- Read the marginal cost per additional unit.
FAQ
What is the difference between marginal cost and average cost?
Average cost is total cost ÷ total output — the average cost shared by each unit. Marginal cost is the extra cost of making one more unit. They are usually not equal: when marginal cost is below average cost, average cost is pulled down; when it is above, average cost is pulled up. For expansion or order-taking decisions, look at marginal cost (the incremental cost), not average cost.
Why doesn't marginal cost usually include fixed costs?
Fixed costs (factory rent, machine depreciation) do not change in the short run with output, so making one more unit does not increase them and they are excluded. Marginal cost mainly consists of variable costs (extra materials, direct labour, energy). But if expanding output means crossing a capacity limit and adding new equipment or a production line, a step jump in cost occurs and that portion should be counted.
How is marginal cost used in pricing?
In economics, profit is maximised when marginal revenue equals marginal cost. If the selling price (or marginal revenue) is above marginal cost, making and selling one more unit still adds profit and is worth expanding; if below, production should be cut. So marginal cost is the floor reference for order-taking, promotions and output decisions — as long as the price covers marginal cost in the short run, the order still contributes at the margin.
For order-taking or expansion, should I look at marginal or average cost?
For incremental decisions like taking an extra order or producing another batch, use marginal cost, not average cost. Average cost = total cost ÷ total quantity, including the spread of fixed costs. Marginal cost = the extra cost of one more unit, usually only variable costs because fixed costs do not rise with one more unit. The key reason: fixed costs are already sunk in the short run. When deciding whether to accept an extra order, what matters is the extra cost and extra revenue it brings — the comparison of marginal cost and marginal revenue. Fixed costs (rent, depreciation) are payable whether or not you take this order, so they should not enter the incremental decision. Classic example: average cost HK$100 (incl. fixed-cost allocation) but marginal (variable) cost only HK$60. A customer offers HK$80 per unit extra. If you look at average cost HK$100 you think 'selling at 80 < 100, we lose, reject'; but at marginal cost HK$60 you see 'price 80 > 60, each unit adds HK$20 of marginal contribution' that helps cover fixed costs already due — taking the order is worthwhile short-term as long as it doesn't disrupt normal-priced sales. This is short-run logic only; in the long run the price must cover all costs including fixed costs, and low-price orders must not damage normal-channel pricing.
Why is the marginal cost curve often U-shaped, and what does it mean for production planning?
Textbooks draw the marginal cost curve as a U (first falling, then rising), reflecting real cost behaviour at different output levels. Early stage — falling MC: at low output, increasing production brings economies of scale and specialisation — fixed resources are used more fully, workers get more skilled, bulk purchasing may earn discounts — so the cost of each extra unit declines. This is the efficiency-gain stage. Later stage — rising MC: once output approaches or exceeds the optimal level of existing capacity, bottlenecks and diseconomies appear — machines overload, overtime pay, breakdowns, harder coordination, pricier sourcing — pushing the per-unit cost up sharply. Together they form the U. For planning: (1) the lowest point of the U roughly marks the most cost-efficient output and is a key reference for capacity planning; (2) it warns that 'more output is not always better' — past optimal capacity, forcing output higher spikes marginal cost and can eat profits or cause losses, which is why firms assess whether a big order will cross a capacity bottleneck (triggering a step jump in cost like opening a new line); (3) it explains when to expand capacity — when sustained demand sits above the optimal point and marginal cost stays high, investing to expand (shifting the whole U rightward) may be more economical. Note this calculator gives the average marginal cost over a chosen interval, while the U describes the overall trend; different intervals yield different marginal costs, corresponding to different slopes on the U.
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.