Marginal cost is?

Step 1: Analyze the question The question asks for the definition of marginal cost, a basic concept in the theory of cost in Economics.

Step 2: Explain the concept "Marginal" in Economics means "extra" or "additional". So marginal cost (MC) is the extra cost a firm incurs when it produces one more unit of output.

Formula:

MC = Change in Total Cost ÷ Change in Output = ΔTC / ΔQ

For example, if the total cost of producing 10 bags of garri is ₦5,000 and the total cost of producing 11 bags is ₦5,400, then the marginal cost of the 11th bag is ₦5,400 − ₦5,000 = ₦400.

Step 3: Evaluate the options

• A. The lowest cost of producing goods: Wrong. This is not what marginal cost means. MC is not necessarily the lowest cost, and it rises as output increases because of diminishing returns.
• B. The cost of production of the most efficient firm in an industry: Wrong. This describes a low-cost firm and has nothing to do with marginal cost.
• C. The cost of production of the most inefficient firm in an industry: Wrong. This describes the marginal firm in an industry, not marginal cost.
• D. The cost of production of the last or extra unit of goods produced by a firm: Correct. It matches the definition of the additional cost of producing one more unit.

Step 4: Answer The correct option is D.

Exam tip: Whenever you see "marginal" in Economics, think "extra" or "additional". Marginal cost is the extra cost, marginal revenue is the extra revenue, and marginal utility is the extra satisfaction. Also remember that the MC curve cuts the AC curve at its lowest point.