MarginalCost
Last edit March 2, 2006
Suppose it costs $500 to make 10 widgets, or $506 to make 11 widgets.
The
MarginalCost
of the eleventh widget is $6 / widget. This is the extra (incremental) cost of making the last widget.
The
AverageCost
of 10 widgets is $500 / 10 widgets = $50 / widget.
The
AverageCost
of 11 widgets is $506 / 11 widgets = $46 / widget.
The
AverageCost
declines (with increasing numbers of widgets) when the
MarginalCost
is less than the
AverageCost
.
See also:
CategoryEconomics
,
CategoryManufacturing
,
AnalogyBetweenProgrammingAndManufacturing
,
MarginalUtility
,
SunkCost