Marginal cost is the cost added by producing one additional unit of a product or service.

• A. The total cost of all units produced
• B. The cost added by producing one additional unit
• C. The revenue from selling one unit
• D. The average cost per unit

Answer: (B)

Marginal cost is the change in total cost that results from producing one additional unit. It measures the extra resources needed to make one more unit, and since fixed costs don’t change with a small increase in output, this cost mainly reflects the variable inputs. The description “the cost added by producing one additional unit” captures this idea precisely. By contrast, total cost is the sum of costs for all units, revenue per unit is the money earned from selling one unit, and average cost per unit is total cost divided by the number of units. For example, if total cost rises from $100 to $110 when you add another unit, the marginal cost of that unit is $10.