{"id":271674,"date":"2023-12-11T13:14:23","date_gmt":"2023-12-11T01:14:23","guid":{"rendered":"https:\/\/www.reckon.com\/nz\/?page_id=271674"},"modified":"2025-01-29T12:24:18","modified_gmt":"2025-01-29T00:24:18","slug":"marginal-cost","status":"publish","type":"glo","link":"https:\/\/www.reckon.com\/nz\/glossary\/marginal-cost\/","title":{"rendered":"What is marginal cost?"},"content":{"rendered":"

[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” locked=”off” global_colors_info=”{}”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f4f4f4″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Definition description” _builder_version=”4.27.4″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n

Marginal cost is a metric that looks at the additional costs involved in producing one unit of a good or service. Understanding marginal costs helps with sound financial management and assists businesses in deciding the profitability<\/a> of both increased and decreased production.<\/p>\n

Marginal cost (definition)<\/h2>\n

Marginal cost is a concept in economics that refers to the additional cost incurred by producing one more unit of a good or service. Both fixed costs and variable costs are considered when looking at marginal costs.<\/p>\n

Marginal costs basically represent the change in total cost that results from a one-unit change in the level of production.<\/p>\n

Marginal cost calculations can help businesses when making production decisions or pricing strategies in the short term, as they provide insight<\/a> into whether it\u2019s profitable to increase or decrease production.<\/p>\n

In ideal market conditions, businesses usually set their prices equal to their marginal costs to maximise long-term profit<\/a>.<\/p>\n

<\/br><\/p>\n

How do you calculate marginal cost?<\/h2>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/nz\/wp-content\/uploads\/2024\/05\/marginal-cost.png” title_text=”Marginal Cost” _builder_version=”4.27.2″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”Definition description + related terms” _builder_version=”4.27.4″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

The marginal cost equation and steps are as follows:<\/p>\n

    \n
  1. Determine the Change in Total Cost
    <\/strong>Find out how much the total cost increases or decreases when you produce one more unit.<\/li>\n
  2. Determine the Change in Quantity Produced<\/strong>
    Identify the change in the quantity of goods or services produced when moving from one production level to another.<\/li>\n<\/ol>\n

    In calculating marginal cost, you can now simply divide the change in total cost by the change in quantity produced.<\/p>\n

    Use the marginal cost formula:<\/p>\n

    Marginal cost =<\/strong> Change in Total Expenses \/ Change in Quantity of Units Produced.<\/strong><\/p>\n

    See related terms<\/strong><\/p>\n

      \n
    1. What is a fixed cost?<\/a><\/strong><\/li>\n
    2. What is profit?<\/a><\/strong><\/li>\n
    3. What Is Liquidity?<\/a><\/strong><\/li>\n<\/ol>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n

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      Marginal cost is a metric that looks at the additional costs involved in producing one unit of a good or service. Understanding marginal costs helps with sound financial management and assists businesses in deciding the profitability of both increased and decreased production. Marginal cost (definition) Marginal cost is a concept in economics that refers to […]<\/p>\n","protected":false},"author":6,"featured_media":278510,"menu_order":0,"template":"","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-271674","glo","type-glo","status-publish","has-post-thumbnail","hentry"],"yoast_head":"\nWhat is marginal cost? | Accounting Terms | Reckon Glossary<\/title>\n<meta name=\"description\" content=\"Are you unsure on how you can expand your small business? 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