A Marginal Cost Formula Example
Here is an example of how to calculate marginal cost:
Big Dynamo is a toy company that produces robot toys. Every month,
they produce 2,000 robot toys for a total cost of $200,000. They
expect to produce 4,000 robot toys next month for $250,000.
Marginal Cost
Current production amount
2000
Current production cost
$200,00
Future production amount
4000
Future cost of production
$250,00
Marginal Cost Formula
Since we know that Marginal Cost = (Change in Total Cost)/ (Change
in Quantity), we have:
Change in total cost = (250,000-$200,000) = $50,000
Change in total units = (4000-2000) = 2000
So, the marginal cost equals $50,000/2000 = $25
Note that the marginal cost represents the change in the cost of a
good, not the total cost of the good itself. This $25 represents the
margin change.
$25