Marginal Cost

What is Cost?

Cost refers to the total expenditure made on inputs or resources that are used for the production of final goods or services. The resources used by a firm are limited in nature and thus require efficient allocation to maximise the firm’s profit. The cost or economic cost of a firm consists of all the expenses it faces, can manage, and are beyond its control. For example, cost of labor, capital, and raw materials. Besides other resources, a firm may also use those resources whose expenses are not that clear but are still essential for the firm. The cost concept is also used in cost accounting....

Types of Cost

There are different types of economic costs such as Total Costs, Opportunity Costs, Sunk Costs, Average Costs, Marginal Costs, Fixed Costs, and Variable Costs....

1. Total Cost

In the short run, some of the factors are fixed, while other factors are variable. In the same way, the short-run costs are also categorised into two different kinds of cost; viz., Fixed Costs and Variable Costs. The sum total of these costs is equal to the Total Cost....

2. Average Cost

Average Costs are the per unit costs which explain the relationship between the cost and output in a realistic manner. These per-unit costs are obtained from Total Fixed Cost, Total Variable Cost, and Total Cost. The three different types of per-unit costs are as follows:...

3. Marginal Cost

The additional cost incurred to the total cost when one more unit of output is produced is known as Marginal Cost. For example, if the total cost of producing 2 units is ₹400 and the total cost of producing 3 units is ₹600, then the marginal cost will be 600 – 400 = ₹200....

Difference between Marginal Cost, Average Cost, and Total Cost

Basis Marginal Cost Average Cost Total Cost Meaning Additional cost incurred to the total cost when one more unit of output is produced. Per unit costs which explain the relationship between the cost and output. Total expenditure incurred by an organisation on the factors of production which are required for the production of a commodity. Formula MCn = TCn – TCn-1 AC= TC/Q TC = TFC + TVC Types Marginal Cost Average Fixed Cost, Average Variable Cost, and Average Total Cost. Fixed Costs and Variable Costs...

Difference Between Fixed Cost and Variable Cost

Basis Fixed Cost Variable Cost Meaning Cost that remains constant even without the level of production output. Cost that change according to production output. Impact Costs on which the output level does not have a direct impact. Costs on which the output level has a direct impact. Control Difficult to control in the short run, but can be change in the long run. Easy to change in the short run by changing production output. Other Names/Also Known as Supplementary Cost, Overhead Cost, Unavoidable Cost, Indirect Cost, or General Cost. Prime Cost, Avoidable Cost, or Direct Cost. Examples Salary of staff, rent on office premises, and interest on loans. Fuel, power, payment for raw materials and direct labor....