Marginal Cost

Marginal Cost is the additional cost incurred to produce one more unit of a product or service. It is an essential concept in economics and business because it helps determine pricing strategies, production levels, and the overall efficiency of a company. Marginal cost is particularly useful for businesses when making decisions about scaling production and assessing the economic viability of expanding output.

The formula for Marginal Cost is:

Marginal Cost = Change in Total Cost / Change in Quantity

For example, if a company incurs an additional AED 5,000 in costs to produce 1,000 more units, the marginal cost per unit would be AED 5. Understanding the marginal cost allows businesses to identify at what point production becomes inefficient or unprofitable, helping them make informed decisions on whether to increase, decrease, or maintain current production levels.