Asked by Pman 0% GG
What is the best definition of marginal cost?
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GPT-5 mini
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Marginal cost is the additional cost of producing one more unit of output. Formally:
- Discrete form: MC = ΔTC / ΔQ, where ΔTC is the change in total cost when output changes by ΔQ.
- Continuous form: MC(Q) = dTC/dQ, the derivative of total cost with respect to quantity.
Key points:
- It reflects the change in variable costs (fixed costs do not affect marginal cost).
- It is the relevant cost for short-run production decisions: firms increase output while price exceeds marginal cost and, in perfect competition, maximize profit where P = MC.
- The marginal-cost curve is often U-shaped because of diminishing marginal returns: MC falls at low output and rises at higher output.
- The MC curve intersects the average total cost curve at the latter’s minimum.
Example: If producing 100 units costs $1,000 and producing 101 units costs $1,010, MC of the 101st unit = ($1,010 − $1,000)/(101 − 100) = $10.
- Discrete form: MC = ΔTC / ΔQ, where ΔTC is the change in total cost when output changes by ΔQ.
- Continuous form: MC(Q) = dTC/dQ, the derivative of total cost with respect to quantity.
Key points:
- It reflects the change in variable costs (fixed costs do not affect marginal cost).
- It is the relevant cost for short-run production decisions: firms increase output while price exceeds marginal cost and, in perfect competition, maximize profit where P = MC.
- The marginal-cost curve is often U-shaped because of diminishing marginal returns: MC falls at low output and rises at higher output.
- The MC curve intersects the average total cost curve at the latter’s minimum.
Example: If producing 100 units costs $1,000 and producing 101 units costs $1,010, MC of the 101st unit = ($1,010 − $1,000)/(101 − 100) = $10.
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