The cost of producing one additional unit. If the total cost of producing 10 units is $50, and if the total cost of producing 11 units is $54, then marginal cost at that level of output is $4. This is to be distinguished from “average” cost, the total dollar cost incurred during some relevant period of time, divided by the total number of units produced in that period. Here, for example, the average cost is approximately $4.91 ($54 total cost, divided by 11 units), or 91¢ more than the marginal cost. The one includes Fixed Cost (overhead), the other does not. “Constant” marginal costs, the absence of variation at different output levels, indicates the absence of both economies and diseconomies of scale in that output range.
Marginal Cost – In accounting, the additional total expense incurred as a result of producing one additional unit of an existing product or service. Also known as incremental cost. (www.minnesotamutual.com/news/glossary_pages/glossary_m.asp)