Marginal Cost

Formal

The extra/additional cost of producing or manufacturing an item, rather than the full cost of manufacture. Eg, - a production line is built to manufacture 1000 cars. Total cost $1,000,000, therefore cost per car is $1,000. However, if extending the run by another 100 cars, the extra cost of this is only another $10,000. This means that the marginal cost of the extra 100 cars is $10,000 divided by 100 = $100 per car, NOT the original $1,000 total cost per car.

Real-world Example

A factory already covering its fixed costs calculates that producing one extra unit costs only $12 in materials and labour - the marginal cost, which is often much lower than the average cost per unit.