How to Find Marginal Cost

Three Parts:Formula PreparationSolve Total CostMarginal Cost Formula

Marginal cost is a production and economics calculation that tells you the cost of producing additional items. You must know several production variables, such as fixed costs and variable costs in order to find it. You can learn how to find marginal cost by using a formula.

Part 1
Formula Preparation

  1. Image titled Find Marginal Cost Step 1
    1
    Find or make a chart that shows your production costs and quantities. Make sure to include the following in your chart:
    • Quantities. You will want to devote the first column in your chart to the total number of units produced. Your quantities can increase by 1, such as 1,2,3,4 etc. or they can increase by larger increments, such as 1,000, 2,000, 3,000 etc.
    • Fixed costs and variable costs. During production there are certain costs, such as rent, that are fixed. Other costs, such as the cost of materials are variable according to the quantity. Make columns for each of the costs next to the quantities and input the figures.
  2. Image titled Find Marginal Cost Step 2
    2
    Take out a pen, paper and calculator. You can also choose to do the work on a spreadsheet; however, you can understand the marginal cost calculation better if you write out the formula initially.

Part 2
Solve Total Cost

  1. Image titled Find Marginal Cost Step 3
    1
    Place another column labeled "Total Cost" to the right of your columns for "Fixed Cost" and Variable Costs."
  2. Image titled Find Marginal Cost Step 4
    2
    Add together your fixed costs and variable costs for each number of units.
  3. Image titled Find Marginal Cost Step 5
    3
    Enter the total cost calculation in the column, until all the costs for each unit increment are calculated.
    • If you are using a spreadsheet program, you can insert a formula in the total cost column that will add together the fixed and variable costs on each row to calculate total cost.

Part 3
Marginal Cost Formula

  1. Image titled Find Marginal Cost Step 6
    1
    Write out the formula "Marginal Cost=Change in Total Cost/Change in Total Quantity."
  2. Image titled Find Marginal Cost Step 7
    2
    Make a column to the right of total cost that says "Marginal Cost." Your first line in the column will remain blank, because you cannot figure out a marginal cost based on no units of production.
  3. Image titled Find Marginal Cost Step 8
    3
    Find change in total cost by subtracting the total cost in row 3 from total cost in row 2. $40 minus $30.
  4. Image titled Find Marginal Cost Step 9
    4
    Find the change in total quantity by subtracting the total quantity in row 3 from the total quantity in row 2. For example, 2 minus 1.
  5. Image titled Find Marginal Cost Step 10
    5
    Plug your numbers into the formula. For example, Marginal Cost=$10/1. In this case, the marginal cost is $10.
  6. Image titled Find Marginal Cost Step 11
    6
    Write your marginal cost in the column on the second row. Continue to subtract figures from the row above to figure out marginal cost for the remaining units of production.

Things You'll Need

  • Calculator
  • Chart of production costs
  • Pencil/pen
  • Paper
  • Marginal cost formula
  • Spreadsheet program (optional)

Article Info

Categories: Economics