Question

Select the correct answer.

What is marginal cost?
A. It is the change in a company’s total output arising from a change in the total price of one unit.
B. It is the change in a company’s total revenue arising from a change in total output of one unit.
C. It is the change in a company’s total cost arising from a change in total output of one unit.
D. It is the change in a company’s average revenue arising from a change in total output of one unit.

Answer 1

The correct answer is C.

The marginal cost measures the amount in which the total cost of a company increases when deciding to generate an extra unit of a product or service. Therefore it is the cost of generating one more unit of output.

It is important for a firm to calculate its marginal costs at different levels of output, to be able to decide which is the optimal level of production in order to achieve profit maximization.

Answer 2

is the change in a company’s total cost arising from a change in total output of one unit.