How does a firm calculate marginal cost?

Question

a. By subtracting it total cost from total revenue
b. By adding up its variable costs and fixed costs
c. By dividing the change in total cost by the change in output
d. By dividing the change in output by the change in total cost

Answer 1

The correct answer is:

c. By dividing the change in total cost by the change in output

Marginal cost is calculated as the increase in total cost that results from producing one more unit of output, and it is determined by the formula:

\[ \text{Marginal Cost} = \frac{\Delta \text{Total Cost}}{\Delta \text{Output}} \]

where \(\Delta\) represents the change in total cost and change in output.