Marginal Cost
Marginal CostSuppose it costs $500 to make 10 widgets, or $506 to make 11 widgets.
The MarginalCost of the eleventh widget is $6 / widget. This is the extra (incremental) cost of making the last widget.
The AverageCost? of 10 widgets is $500 / 10 widgets = $50 / widget.
The AverageCost? of 11 widgets is $506 / 11 widgets = $46 / widget.
The AverageCost? declines (with increasing numbers of widgets) when the MarginalCost is less than the AverageCost?.
See also: CategoryEconomics, CategoryManufacturing, AnalogyBetweenProgrammingAndManufacturing, MarginalUtility, SunkCost
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(last edited March 2, 2006)
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