What is marginal cost defined as?

Marginal cost is defined as the rate of change of total cost with respect to volume. This means it represents the additional cost incurred when producing one more unit of a good or service. Understanding marginal cost is crucial in decision-making as it helps businesses determine the right production level to maximize profit. When analyzing production costs, companies can assess how much it will cost to increase output and make informed decisions about adjustments in production levels.

In contrast, total cost of production encompasses all costs involved, including fixed and variable costs, while the cost of goods sold specifically refers to the direct costs attributable to the production of the goods sold by a business. The initial setup cost of a project refers to the upfront investment required before any production occurs and does not account for changes in cost relative to output.