In economics, the term "marginal" refers to the additional or incremental change resulting from a particular decision or action. Marginal cost, therefore, is the cost of producing one additional unit of a good or service. In contrast, total cost is the sum of all costs incurred in the production of a given quantity of a good or service.
There is a relationship between marginal cost and total cost, which can be illustrated through a cost curve. A cost curve is a graph that shows the relationship between the quantity of a good or service produced and the total cost of producing that quantity.
As a firm increases production, the marginal cost of each additional unit of output will eventually increase. This is because at some point, the firm will have to hire more workers or purchase additional equipment, leading to an increase in variable costs. As marginal cost increases, the total cost of production also increases, as the firm is incurring higher costs for each additional unit of output.
However, at the beginning of the production process, marginal cost is typically lower than the average total cost of production. This is because the fixed costs, such as rent and equipment, are spread out over a larger quantity of output. As production increases and marginal cost begins to rise, the average total cost of production also increases.
It is important to note that the relationship between marginal cost and total cost is not always linear. In some cases, there may be economies of scale, which refer to the cost advantages that a firm experiences as it increases production. These cost advantages can lead to a decrease in marginal cost and average total cost, resulting in a downward-sloping cost curve.
In conclusion, the relationship between marginal cost and total cost is a key concept in economics. Understanding this relationship is important for firms as they make production and pricing decisions, as well as for policymakers as they consider the impact of their actions on the overall cost of goods and services.
