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The additional cost incurred for the production of one more unit of a product or service is called _____________.
Fixed cost
Variable cost
Marginal cost
Average cost
Marginal cost
Marginal cost is defined as the change in total cost resulting from the production of one additional unit of output. It represents the incremental cost of increasing production by a single unit.
Marginal cost is defined as the change in total cost resulting from the production of one additional unit of output. It represents the incremental cost of increasing production by a single unit.
MC=╬ФQ╬ФTCтАЛ тАФ Discrete calculation for change in cost per unit change in quantity
MC=dQd(TC)тАЛ тАФ Calculus-based definition for continuous cost functions
The principle relies on the derivative of the total cost function TC(Q) with respect to the quantity Q. As production levels fluctuate, total cost changes due to variable components; the marginal cost captures the instantaneous rate of this change, helping firms determine optimal production levels where MC=MR.
Marginal cost is independent of fixed costs because fixed costs do not change with output.
The MC curve typically follows a U-shape due to the law of diminishing returns.
It is a critical decision-making tool for profit maximization strategies in microeconomics.
If MC<AverageCost, the average cost decreases; if MC>AverageCost, the average cost increases.
Helps in determining the exact output level for profit maximization.
Assists in competitive pricing strategies.
Does not account for fixed cost recovery in the short run.
Requires accurate data on incremental changes which can be difficult to measure.
Determining optimal production output in manufacturing.
Setting service pricing in telecommunications and power distribution.
Analyzing production efficiency.
Fixed cost: Costs that remain constant regardless of the volume of production (e.g., rent).
Variable cost: Costs that vary directly with the level of output (e.g., raw materials).
Average cost: Total cost divided by the number of units produced.
Option A (Fixed Cost) is incorrect as it does not change with additional output.
C is correct тАФ Marginal cost refers to the incremental cost incurred by increasing output by one unit.
Always remember that Marginal Cost is the derivative of Total Cost; in exam problems involving supply chains, if given a cost equation, differentiate it once to find the MC.
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