What is meant by "marginal cost"?

Marginal cost refers to the additional cost incurred in producing one more unit of a good or service. It is a key concept in economics that helps businesses determine the optimal level of production. By analyzing marginal costs, companies can assess whether producing an additional unit would be beneficial or not, based on whether the revenue from that unit outweighs the cost of producing it.

Understanding marginal cost is crucial for making decisions on production levels, pricing, and maximizing profit. If the marginal cost of producing an extra unit is less than the price that can be charged for it, then it’s profitable to increase production. Conversely, if the marginal cost exceeds the price, it may not make sense to produce that additional unit.