Question

The change in variable costs that occurs when production is increased by one unit is referred to as the

Select one:

a. total cost

b. marginal cost

c. average cost

Answer 1

Sol:

The change in variable costs that occurs when production is increased by one unit is referred to as the marginal cost.

Answer is b. Marginal cost

Marginal cost refers to the increase in cost of producing an additional unit of good or service. It is also known as incremental cost. Costs are basically consisting of fixed and variable costs. Fixed costs do not change as output changes therefore marginal cost is derived from the variable cost of production. Once the production has already started, additional fixed cost is not incurred in producing another unit of a good or service. The only expenses going forward are variable cost.