per widget. The other way of measuring

cost per unit is marginal cost. If average cost is the cost of the average unit of output produced, marginal cost is

the cost of each individual unit produced. More formally, marginal cost is the cost of producing one more unit

of output. Mathematically, marginal cost is the change in total cost divided by the change in output:

. If the cost of the first widget is $32.50 and the cost of two widgets is $44, the marginal cost of

the second widget is

marginal cost added.

We can see the Widget Cost table redrawn below with average and

Q

1

2

3

4

Total Cost

$32.50 $44.00 $52.00 $90.00

Average Cost $32.50 $22.00 $17.33 $22.50

Marginal Cost $32.50 $11.50

$8.00

$38.00

TABLE 7.8 Extended Cost Function for Producing

Widgets

Note that the marginal cost of the first unit of output is always the same as total cost.

Fixed and Variable Costs
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