what marginal cost can tell you
marginal cost is an economics and managerial accounting concept most often used among manufacturers as a means of isolating an optimum production level manufacturers often examine the cost of adding one more unit to their production schedules at a certain level of production the benefit of producing one additional unit and generating revenue from that item will bring the overall cost of producing the product line down the key to optimizing manufacturing costs is to find that point or level as quickly as possible marginal cost includes all of the costs that vary with that level of production for example if a company needs to build an entirely new factory in order to produce more goods the cost of building the factory is a marginal cost the amount of marginal cost varies according to the volume of the good being produced marginal cost is an important factor in economic theory because a company that is looking to maximize its profits will produce up to the point where marginal cost mc equals marginal revenue mr beyond that point the cost of producing an additional unit will exceed the revenue generated economic factors that may impact marginal cost include information asymmetries positive and negative externalities transaction costs and price discrimination benefits of marginal cost