Marginal cost (MC) is the extra cost a business pays to produce one additional unit of a product. It is calculated by dividing the change in total cost by the change in the total quantity produced.

Formula: MC = ΔTC / ΔQ

Key features:

• Usually, marginal cost decreases at first, but it starts to rise as production increases due to smaller returns.
• The MC curve typically has a U-shape in the short term.
• It is essential for profit-maximisation, as businesses aim to produce at the point where marginal cost equals marginal revenue (MR).
• It helps determine the supply curve of a company.