After you have worked through this section of the learning unit, you should be able to:
 describe marginal cost
 calculate marginal cost
Marginal cost is the additional cost of producing one more unit of output. It is therefore not the cost per unit of all units being produced, but only the next one.
If data on total cost is available in increments of one unit of output, it is easy to calculate it, as the following activity demonstrates.
The following data is provided:
The total cost to produce three units = R100.
The total cost to produce four units = R110.
The total cost to produce five units = R122.
 Calculate the marginal cost of producing the fourth unit.
 Calculate the marginal cost of producing the fifth unit.
The marginal cost of producing the fourth unit = the total cost of producing four units – the total cost to produce three units = R110 – R100 = R10. The marginal cost of producing the fifth unit = the total cost of producing five units – the total cost to produce four units = R122 – R120 = R12.
Let's take an example where we have production data for intervals of more than one unit change, as in the case of Best Barber.
At an output level of 72 haircuts, the total cost is R960.
At an output level of 80 haircuts, the total cost is R1 120.
In this case, the marginal cost is calculated by taking the change in total cost and dividing it by the change in total product.
$$\text{Marginal cost} = {\text{change in TC } \over \text{change in TP}}$$
The change in total cost (TC):
$$\text{} = {\text{the total cost of 80 haircuts  the total cost of 72 haircuts}}$$
$$\text{} = {\text{R1120  R960}}$$
$$\text{} = {\text{R160}}$$
The change in quantity (TP):
$$\text{} = {\text{80 haircuts  72 haircuts}}$$
$$\text{} = {\text{8 haircuts}}$$
The marginal cost is therefore:
$$\text{} = {\text{ R160} \over \text{ 8}}$$
$$\text{} = {\text{ R20}}$$
Use the following data to calculate the marginal cost:
At an output level of 40, the total cost is R640.
At an output level of 60, the total cost is R800.
The marginal cost is therefore R _______.
The change in total cost is R800 – R640 = R160.
The change in haircuts = 60 – 40 = 20.
The marginal cost = R160 ÷ 20 = R8.
In the following table, the marginal cost of haircuts for Best Barber is added to the cost data:
The marginal cost of haircuts for Best Barber
Quantity of labour

Quantity of haircuts

Total fixed costs (TFC)
(rand) 
Total variable costs (TVC)
(rand) 
Total cost
(TC) (rand) 
Marginal cost
(MC) (rand) 
0  0  320  0  320   
1  16  320  160  480  10,00 
2  40  320  320  640  6,67 
3  60  320  480  800  8,00 
4  72  320  640  960  13,33 
5  80  320  800  1 120  20,00 
6  84  320  960  1 280  40,00 
7  82  320  1 120  1 440  80,00 
The data used to calculate marginal cost is highlighted, and the formula that is used is
$$\text{MC} = {\text{∆ TC} \over \text{∆ Q}}$$
The important thing to notice about marginal cost is that it first decreases, reaches a minimum and then increases. It is the increasing part of marginal cost that we are mainly interested in.
Activity
Do the following activity to see if you understand marginal cost:
Complete the following table for the marginal cost for Blaker Maker, a firm that manufactures garden ornaments by filling in the correct amounts:
Quantity of ornaments TP 
Total fixed cost TFC (rand) 
Total variable cost TVC (rand) 
Total cost TC (rand) 
Marginal cost MC (rand) 
0  20 000  0  20 000   
1 000  20 000  30 000  50 000  30 
2 000  20 000  50 000  70 000  20 
3 000  20 000  65 000  85 000  
4 000  20 000  85 000  105 000  20 
5 000  20 000  110 00  130 000  
6 000  20 000  150 00  170 000  40 
7 000  20 000  210 00  230 000 
Marginal cost is calculated by taking the change in total cost and dividing it by the change in total product.
$$\text{MC} = {\text{∆ TC} \over \text{∆ TP}}$$
For the 3000th unit, it is
$$\text{MC} = {\text{R85 000  R70 000} \over \text{R3 000  R2 000}}$$
$$\text{} = {\text{R15}}$$
For the 5000th unit, it is
$$\text{MC} = {\text{R130 000  R105 000} \over \text{R5 000  R4 000}}$$
$$\text{} = {\text{R25}}$$
For the 7000th unit, it is
$$\text{MC} = {\text{R230 000  R170 000} \over \text{R7 000  R6 000}}$$
$$\text{} = {\text{R60}}$$
Quantity of ornaments TP 
Total fixed cost TFC (rand) 
Total variable cost TVC (rand) 
Total cost TC (rand) 
Marginal cost MC (rand) 
0  20 000  0  20 000   
1 000  20 000  30 000  50 000  30 
2 000  20 000  50 000  70 000  20 
3 000  20 000  65 000  85 000  15 
4 000  20 000  85 000  105 000  20 
5 000  20 000  110 00  130 000  25 
6 000  20 000  150 00  170 000  40 
7 000  20 000  210 00  230 000  60 