The Marginal Cost (MC) of an additional unit of output is the cost of the additional inputs needed to produce that output. Here is one of the formulas for calculating marginal cost:
$\ MC=\Delta CF\div\Delta output$
For example, suppose it costs €1600 to produce 100 units and €2300 to produce 200 units. MC = €7
What does it mean to have the marginal cost equal to 7?
What does it mean to have the marginal cost equal to 7?
It means that, at the current size of your production capabilities, if you want to produce one more unit of your product, you will have to spend 7 Euro.
This, MC value is a quantitative description of the cost you pay if you want to adjust your initial production plan to a larger output and it is determined by your production capacities.
Here is an example:
You have a bus company and your service is to offer a one way trip from point A to point B, every day at a given hour. Now, your buses have 50 seats and your total cost for the trip is 100 Euro (fuel, road taxes, etc).
In addition to that your licence says that you have to provide additional bus if the passengers are more than 50.
In this case, if you have 49 passengers and in the last minute there is a reservation for one more seat, your marginal cost is effectively zero, however, if there are two reservations in the last minute and the total number of passengers is now 51, the 51th passenger's marginal cost is 100 Euro, because you need a second bus only for him.
