Marginal cost

In economics and finance, marginal cost is the cost of increasing the quantity produced (or purchased) by one unit.

The use of this term usually implies that the cost per unit depends on the total number of units produced. For example, the marginal cost to go from producing 0 barrels of oil to producing 1 barrel of oil is tremendous. The marginal cost at 100 barrels—that is, the cost of producing the 101^st barrel—is much lower, and the marginal cost at 10 million barrels is lower still (due to economies of scale).

Marginal cost is not the same as average unit cost. The average unit cost considers the cost of every unit. The marginal cost ignores all units except the last. For example, the average cost per barrel to produce oil includes the heavy fixed cost to produce the first barrel (divided among all the barrels produced). The marginal cost does not include that fixed cost at all.