What this calculator does
Marginal cost is the extra cost of producing one additional unit of output. It is worked out from two snapshots of production, total cost and quantity at a lower output level and at a higher one, rather than from a single cost figure, because it measures a change, not a level.
Marginal cost usually differs from average cost per unit. A factory’s average cost per unit blends in fixed costs like rent and machinery spread across everything made, while marginal cost only reflects the extra cost, mostly materials and labour, of producing a bit more once those fixed costs are already committed.
The formula
Take the change in total cost between the two output levels and divide it by the change in quantity produced between them. The result is the average extra cost per additional unit over that specific range of output.
| Term | Meaning |
|---|---|
| Marginal cost | The extra cost per additional unit: change in total cost ÷ change in quantity. |
| Total cost | All production costs, fixed and variable, at a given quantity produced. |
| Quantity | The number of units produced at each of the two output levels being compared. |
The inputs explained
| Field | What to enter |
|---|---|
| Total cost at the lower output level ($) | Total production cost at the lower of the two output levels. |
| Quantity produced at that level | The quantity produced at that lower output level. |
| Total cost at the higher output level ($) | Total production cost at the higher of the two output levels. |
| Quantity produced at that level | The quantity produced at that higher output level. |
When to use it
Deciding whether to increase production
Comparing marginal cost against the price each extra unit sells for shows whether producing more is worth doing, separate from whatever profit the existing output level already makes.
Spotting when costs start rising faster than output
A marginal cost that climbs sharply between two output levels, faster than the average cost per unit, often signals that production is approaching a capacity limit, such as needing overtime or extra shifts.
Pricing an additional order
A one-off order beyond normal production volume is sometimes priced against marginal cost rather than average cost, since the fixed costs are already covered by existing sales.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How marginal cost changes as the higher-level total cost rises, at fixed output levels
A fixed lower level of 1,000 units at $50,000, and a fixed higher level of 1,200 units, across a range of total costs at that higher level.
| Total cost at higher output | Marginal cost per unit | Change in total cost |
|---|---|---|
| $51,000 | $5.00 | $1,000.00 |
| $52,000 | $10.00 | $2,000.00 |
| $54,000 | $20.00 | $4,000.00 |
| $56,000 | $30.00 | $6,000.00 |
| $60,000 | $50.00 | $10,000.00 |
| $65,000 | $75.00 | $15,000.00 |
How marginal cost changes as the higher-level quantity rises, at fixed costs
A fixed lower level of 1,000 units at $50,000, and a fixed higher-level cost of $54,000, across a range of quantities at that higher level.
| Quantity at higher output | Marginal cost per unit | Change in quantity |
|---|---|---|
| 1,050 | $80.00 | 50 |
| 1,100 | $40.00 | 100 |
| 1,200 | $20.00 | 200 |
| 1,400 | $10.00 | 400 |
| 1,600 | $6.67 | 600 |
| 2,000 | $4.00 | 1,000 |
Questions
How is marginal cost different from average cost?
Average cost is total cost divided by total units produced, blending in fixed costs across the whole run. Marginal cost only measures the extra cost of the additional units between two output levels, which can be higher or lower than the average.
Why would marginal cost be negative?
A negative result means total cost fell while quantity rose, which can happen with genuine efficiency gains, such as unlocking a bulk discount on materials or better equipment utilisation at higher volume.
Does marginal cost stay constant as output grows?
Rarely over a wide range. It typically falls at first as fixed costs are spread further and efficiencies kick in, then rises again once capacity constraints, overtime or extra equipment are needed to produce more.
How does marginal cost relate to cost of goods sold?
COGS is the total direct cost of everything sold in a period; marginal cost is the extra cost of one more unit at the margin. The COGS calculator gives the period total, while this figure focuses on the next unit specifically.
For the total direct cost of everything produced and sold in a period, see the COGS calculator. To turn cost and selling price into a profit margin, use the margin calculator.