The increase in total costs required to produce one additional unit of output is referred to as "marginal cost."
Here's why:
1. Marginal cost is calculated as the change in total cost divided by the change in quantity of output. It measures the additional cost incurred when producing one more unit of a good or service.
2. For example, if a company produces 100 units at a total cost of [tex]$1,000 and then produces 101 units at a total cost of $[/tex]1,020, the marginal cost of producing the 101st unit would be [tex]$20 ($[/tex]1,020 - $1,000).
3. Understanding marginal cost is essential for businesses to make production decisions. If the marginal cost is less than the price at which the additional unit can be sold, it is profitable to produce more. However, if the marginal cost exceeds the selling price, it may not be economically viable to increase production.
In summary, marginal cost is a crucial concept in economics that helps businesses optimize their production levels and pricing strategies.
