Finance and accounting
Marginal cost
The extra cost of making one more unit.
Last reviewedWhat does Marginal cost mean?
Marginal cost is the cost of producing one more unit. With spare capacity it is roughly the variable cost; when capacity is full it can jump, because one more unit may need overtime or a new machine. Pricing decisions for extra orders should compare price with marginal cost, not with average cost.
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Related terms
- Variable costA cost that rises and falls with how much you make.
- Step costA cost that is flat over a range, then jumps.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Semi-variable costA cost with a fixed part and a part that moves with volume.
- MarginProfit on a sale, as an amount per unit or as a percent of price.