Finance
Marginal Cost Calculator
Marginal cost is the change in total cost divided by the change in quantity: MC = ΔTC ÷ ΔQ. Marginal revenue is MR = ΔTR ÷ ΔQ, and marginal profit is MR − MC. Enter two before-and-after points or a full production table to get all three, plus the output where MR = MC and profit peaks.
What to find
Enter data as:
Quantity produced
The output level before and after the change
Total cost
Everything it cost to produce each of those quantities
$
$
Marginal cost per unit
$30.00
ΔTC $600.00 ÷ ΔQ 20 units
Change in quantity
20 units
Change in total cost
$600
Change in revenue
$1,400
Marginal profit
$40.00
Revenue against cost, per unit
Marginal revenue$70.00
Marginal cost$30.00
Gap = $40.00 per unit · the extra output pays for itself
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The formulas
The three marginal formulas, side by side
Marginal cost, marginal revenue and marginal profit are the same operation applied to three different totals: divide the change by the change in output that caused it. Learn one and you have all three.
MC = ΔTC ÷ ΔQ
Marginal cost
What producing one more unit costs. The change in total cost ΔTC over the change in quantity ΔQ. Anything that did not change — rent, salaried staff — cancels out entirely.
$600 ÷ 20 units = $30.00 per unit
MR = ΔTR ÷ ΔQ
Marginal revenue
What selling one more unit earns. The change in total revenue ΔTR over the same ΔQ. It equals the price only when you never have to discount to shift extra volume.
$1,400 ÷ 20 units = $70.00 per unit
MP = MR − MC
Marginal profit
What one more unit is actually worth. Positive means make it; negative means the unit destroys profit no matter what it does to the top line.
$70.00 − $30.00 = $40.00 per unit
| Quantity | Formula | What it answers | Units |
|---|---|---|---|
| Marginal cost (MC) | ΔTC ÷ ΔQ | What does the next unit cost me? | $ per unit |
| Marginal revenue (MR) | ΔTR ÷ ΔQ | What does the next unit earn me? | $ per unit |
| Marginal profit (MP) | MR − MC | Is the next unit worth making? | $ per unit |
| Average total cost (ATC) | TC ÷ Q | What has each unit cost on average? | $ per unit |
| Profit-maximising output | the Q where MR = MC | How much should I actually make? | units |
The basics
What “marginal” actually means
In economics, marginal never means small or unimportant. It means at the margin — the effect of the very next unit, holding everything you have already done constant. Two consequences follow, and almost every mistake on this topic comes from missing one of them.
a difference, never a total
Marginal is about the change
A marginal figure is always a subtraction followed by a division. Divide a total by a quantity and you have computed an average instead, which answers a different question and usually gives a very different number.
$5,600 − $5,000 = $600 across 20 extra units
fixed costs cancel
Only what changed counts
Because the same fixed cost appears in TC before and after, it disappears in the subtraction. Marginal cost is built out of variable costs alone — unless a step cost is crossed, which lands in the difference as a lump.
Rent at both output levels is identical, so it contributes $0 to ΔTC
Method
How to calculate marginal cost by hand
Four steps take you from two rows of a cost sheet to a cost per extra unit. The identical four steps give marginal revenue if you swap total cost for total revenue. For a longer walk-through with more business cases, see the guide on the marginal cost formula.
- 1
Write down the two output levels
You need a before and an after: the starting quantity Q₁ and the higher quantity Q₂. They must be different — marginal analysis divides by the gap between them.
Q₁ = 100 units · Q₂ = 120 units - 2
Record the total cost at each
Total cost TC means everything: fixed plus variable. Do not try to strip the fixed costs out by hand — the subtraction in the next step removes them for you, and pulling them out early is where errors creep in.
TC₁ = $5,000 · TC₂ = $5,600 - 3
Subtract to get ΔTC and ΔQ
Take the two differences. The change in total cost is the numerator; the change in quantity — not the ending quantity — is the denominator.
ΔTC = $600 · ΔQ = 20 units - 4
Divide, and read the answer per unit
Dividing gives the cost of each extra unit over that range. Marginal cost is a rate — always quote it per unit, never as a lump sum.
MC = $600 ÷ 20 = $30.00 per unit
Worked examples
Four businesses, one formula
A bakery, a tutor, a software company and a firm that cut its price to move more volume. Switch tabs to watch the same subtraction-then-division produce a different verdict each time.
Marginal cost of a bigger bake
Given Q: 500 → 600 loafs · TC: $1,800.00 → $2,050.00
ΔQ = 600 − 500 = 100 loafs
ΔTC = $2,050.00 − $1,800.00 = $250.00 → MC = $250.00 ÷ 100 = $2.50
MC = $2.50 per loaf
The oven, the rent and the baker's salary are identical at both output levels, so they subtract away completely. What is left in ΔTC is only the flour, water and packaging the extra hundred loaves actually consumed — which is exactly what marginal cost is supposed to isolate.
Marginal revenue
How to calculate marginal revenue
Marginal revenue is the change in total revenue divided by the change in quantity sold: MR = ΔTR ÷ ΔQ. It is the mirror image of marginal cost, and it has one property that surprises people the first time they meet it — it is almost never equal to the price on the sticker. The companion guide on how to calculate marginal revenue works through the same idea at greater length.
MR = P
Under perfect competition
When a firm is small enough that it can sell any quantity at the going price, each extra unit adds exactly the price to total revenue. Marginal revenue is flat and equal to price. This is the textbook case, and it is rarer than the textbooks imply.
Sell 1 more at $20.00 with no discount → MR = $20.00
MR < P
When you discount to sell more
Cutting the price to move extra volume costs you on the new units and on every unit you were already selling. Marginal revenue falls below the price, and keeps falling as output rises — which is why the MR curve slopes down.
100 at $20.00 → 130 at $18.00: TR $2,000 → $2,340, so MR = $11.33
That downward slope is what makes the profit question interesting. If marginal revenue were constant, you would produce forever. Because it declines while marginal cost eventually climbs, the two must cross — and the crossing is the whole decision.
Marginal profit
How to calculate marginal profit
Marginal profit is marginal revenue minus marginal cost: MP = MR − MC. There are two routes to it and they always agree, which makes it the easiest of the three figures to check.
MP = MR − MC
Subtract the two marginals
Work out marginal revenue and marginal cost separately, then take the difference. This is the route to use when you already have both numbers in front of you.
$70.00 − $30.00 = $40.00 per unit
MP = ΔProfit ÷ ΔQ
Or divide the change in profit
Profit is revenue minus cost at each output level, so dividing the change in profit by the change in quantity gives the identical answer. A mismatch means an arithmetic slip somewhere upstream.
($5,800 − $5,000) ÷ 20 = $40.00 per unit
The sign is the decision. A positive marginal profit means the next unit adds money and should be produced. A negative one means it takes money away, even when it is still adding revenue — the trap that makes firms chase volume past the point it pays.
Mr = mc
Why profit is maximised where MR = MC
The most useful result in marginal analysis, and it falls straight out of the arithmetic. While marginal revenue is above marginal cost, every extra unit adds profit, so you make it. Once marginal cost overtakes marginal revenue, every extra unit subtracts profit, so you stop. Profit therefore peaks exactly where the two meet.
Here is the schedule worked all the way through. Profit climbs to $72.00 at 5 units — the last output where marginal revenue ($42.00) still covers marginal cost ($40.00). The very next unit earns $33.00 and costs $60.00, so it destroys $27.00 of profit even though it still adds $33.00 of revenue.
| Output (Q) | Total cost | Total revenue | MC | MR | MP | Profit |
|---|---|---|---|---|---|---|
| 0 | $50 | $0 | — | — | — | -$50 |
| 1 | $80 | $60 | $30.00 | $60.00 | +$30.00 | -$20 |
| 2 | $100 | $115 | $20.00 | $55.00 | +$35.00 | $15 |
| 3 | $115 | $165 | $15.00 | $50.00 | +$35.00 | $50 |
| 4 | $140 | $210 | $25.00 | $45.00 | +$20.00 | $70 |
| 5MR = MC | $180 | $252 | $40.00 | $42.00 | +$2.00 | $72 |
| 6 | $240 | $285 | $60.00 | $33.00 | -$27.00 | $45 |
Total profit at each output
0
-$50
1
-$20
2
$15
3
$50
4
$70
5
$72
6
$45
The peak is a plateau, not a spike — near the optimum the marginal profit is close to zero, so being one unit out barely costs anything. Being five units out does.
MR > MC → produce
Every unit below the optimum
The extra unit earns more than it costs, so it adds to profit. Refusing to make it leaves money on the table, which is the mistake of under-producing.
MR < MC → stop
Every unit above the optimum
The extra unit costs more than it earns. Revenue still rises, which is why chasing top line growth past this point feels like progress while quietly shrinking profit.
Marginal vs average
Marginal cost is not average cost
The single most common confusion on this topic. Average total cost divides the whole cost by the whole output; marginal cost divides the change by the change. On the same schedule they can differ by a factor of two and still both be right, because they answer different questions.
| Output (Q) | Total cost | Average cost (TC ÷ Q) | Marginal cost (ΔTC ÷ ΔQ) | Average is |
|---|---|---|---|---|
| 1 | $80 | $80.00 | $30.00 | falling |
| 2 | $100 | $50.00 | $20.00 | falling |
| 3 | $115 | $38.33 | $15.00 | falling |
| 4 | $140 | $35.00 | $25.00 | falling |
| 5 | $180 | $36.00 | $40.00 | rising |
| 6 | $240 | $40.00 | $60.00 | rising |
Average total cost bottoms out at $35.00 on 4 units — exactly where marginal cost passes through it. That crossing is not a coincidence; it is arithmetic.
MC < ATC
The average gets pulled down
Add a unit that costs less than your running average and the average has to fall. It is the same reason a test score above your current mean lifts the mean.
MC > ATC
The average gets pushed up
Add a unit that costs more than the average and the average rises. So the marginal cost curve always crosses the average cost curve at the average's lowest point.
Diminishing returns
Why the marginal cost curve turns upward
Marginal cost is usually drawn as a U, and the schedule above shows why. It falls at first, bottoms out at 3 units ($15.00), then climbs steeply. Two opposing forces produce that shape.
early: spare capacity
Increasing returns pull it down
At low output the fixed factors — the machine, the kitchen, the team — are underused. Each extra unit slots into slack capacity and specialisation improves, so the next unit costs less than the last.
MC falls from $30.00 to $15.00 over the first 3 units
later: stretched inputs
Diminishing returns push it up
Past a point the same fixed factors are the bottleneck. More output needs overtime, rush freight, a second-choice supplier or a crowded floor, and each extra unit costs more than the one before it.
MC climbs to $60.00 by 6 units
This is a short-run story. Given time to add capacity — a bigger oven, another line — the firm moves onto a new cost curve entirely, which is where economies of scale live. The upward turn is about a fixed plant being stretched, not about production being permanently inefficient.
Quick chart
What is the marginal cost of X extra units?
Every combination of a change in total and a change in quantity, already divided. Find your extra cost down the side and your extra units across the top; the cell is the cost per unit. Flip the toggle and the identical grid answers the marginal revenue question.
Show
Marginal cost per unit, for a change in total cost down the side and a change in quantity across the top. Every cell is ΔTC ÷ ΔQ.
| ΔTC ↓ / ΔQ → | 1 | 5 | 10 | 20 | 25 | 50 | 100 | 250 | 500 | 1000 |
|---|---|---|---|---|---|---|---|---|---|---|
| $50 | $50.00 | $10.00 | $5.00 | $2.50 | $2.00 | $1.00 | $0.50 | $0.20 | $0.10 | $0.05 |
| $100 | $100.00 | $20.00 | $10.00 | $5.00 | $4.00 | $2.00 | $1.00 | $0.40 | $0.20 | $0.10 |
| $200 | $200.00 | $40.00 | $20.00 | $10.00 | $8.00 | $4.00 | $2.00 | $0.80 | $0.40 | $0.20 |
| $250 | $250.00 | $50.00 | $25.00 | $12.50 | $10.00 | $5.00 | $2.50 | $1.00 | $0.50 | $0.25 |
| $500 | $500.00 | $100.00 | $50.00 | $25.00 | $20.00 | $10.00 | $5.00 | $2.00 | $1.00 | $0.50 |
| $600 | $600.00 | $120.00 | $60.00 | $30.00 | $24.00 | $12.00 | $6.00 | $2.40 | $1.20 | $0.60 |
| $750 | $750.00 | $150.00 | $75.00 | $37.50 | $30.00 | $15.00 | $7.50 | $3.00 | $1.50 | $0.75 |
| $1,000 | $1,000.00 | $200.00 | $100.00 | $50.00 | $40.00 | $20.00 | $10.00 | $4.00 | $2.00 | $1.00 |
| $1,500 | $1,500.00 | $300.00 | $150.00 | $75.00 | $60.00 | $30.00 | $15.00 | $6.00 | $3.00 | $1.50 |
| $2,000 | $2,000.00 | $400.00 | $200.00 | $100.00 | $80.00 | $40.00 | $20.00 | $8.00 | $4.00 | $2.00 |
| $2,500 | $2,500.00 | $500.00 | $250.00 | $125.00 | $100.00 | $50.00 | $25.00 | $10.00 | $5.00 | $2.50 |
| $5,000 | $5,000.00 | $1,000.00 | $500.00 | $250.00 | $200.00 | $100.00 | $50.00 | $20.00 | $10.00 | $5.00 |
| $10,000 | $10,000.00 | $2,000.00 | $1,000.00 | $500.00 | $400.00 | $200.00 | $100.00 | $40.00 | $20.00 | $10.00 |
Read it either way: $600 of extra total cost across 20 more units is $30.00 per unit, and $30.00 per unit across 20 units is $600.
Where it shows up
What people actually use this for
Marginal analysis is the arithmetic behind three very different decisions, all of which reduce to the same question: is the next one worth it?
the price floor
Pricing and quoting
Marginal cost is the lowest price at which an extra order does not lose money. It is why an airline sells a last-minute seat far below the average cost of flying the plane — the seat is already there, and only the marginal cost is avoidable.
how much to make
Production planning
Comparing marginal cost against marginal revenue tells a plant whether to run another shift, a shop whether to bake another tray, and a studio whether to take on another client. Stop where the next unit stops paying.
exam question
Microeconomics coursework
The MR = MC rule, the U-shaped cost curve and the marginal-crosses-average result are standard exam material. Working a schedule row by row is how the marks are earned, so the table mode above shows every intermediate figure.
Common mistakes
Six ways this goes wrong
Four of these are arithmetic and two are judgement. All six are common enough to have their own wrong answers in textbooks.
MC = TC ÷ Q
Use MC = ΔTC ÷ ΔQ
Dividing the total by the quantity gives average cost, not marginal cost. Marginal analysis only ever looks at the change.
MR = price
Use MR = ΔTR ÷ ΔQ
Price and marginal revenue only match when you can sell any quantity at the same price. Cut the price to shift more units and marginal revenue drops below it.
ΔTC ÷ Q₂
Use ΔTC ÷ (Q₂ − Q₁)
The denominator is the change in output, not the new output level. Using the ending quantity understates marginal cost, often by a lot.
Adding fixed costs into ΔTC
Use Only costs that actually changed
Rent that is the same at both output levels cancels out in the subtraction. If you add it in by hand you are double-counting a cost the extra unit never caused.
revenue rose, so it worked
Judging the decision on the top line
Selling more almost always lifts total revenue. That says nothing about whether it lifted profit. Only the comparison of marginal revenue against marginal cost does.
one big jump
Taking too wide a step
Marginal cost is meant to describe the next unit. Computing it across a jump from a hundred units to a thousand averages a falling stretch and a rising stretch together and hides both. Use the smallest step your data supports.
Glossary
The terms, defined
Marginal analysis has a small vocabulary and it is used precisely. These are the terms that appear in the formulas above and in almost every exam question on the topic.
- Total cost (TC)
- Everything it costs to produce a given output — fixed costs that do not move with volume plus variable costs that do.
- Total revenue (TR)
- Price multiplied by units sold. It is the top line, before any costs are taken out.
- Marginal cost (MC)
- The change in total cost caused by producing one more unit. Fixed costs never appear in it, because they do not change.
- Marginal revenue (MR)
- The change in total revenue from selling one more unit. Equal to price only when selling more does not force the price down.
- Marginal profit (MP)
- Marginal revenue minus marginal cost — what the next unit adds to profit. Positive means make it, negative means stop.
- Average total cost (ATC)
- Total cost divided by output — the cost per unit on average. Marginal cost pulls it down while below it and pushes it up once above it.
- Average variable cost (AVC)
- Variable cost per unit. Below it, a firm loses less by shutting down than by producing, which is the short-run shutdown rule.
- Diminishing marginal returns
- The point where each extra input adds less output than the one before, which is what makes the marginal cost curve turn upward.
- Economies of scale
- The opposite force — spreading fixed capacity over more units, which pulls marginal and average cost down as output grows.
- Profit-maximising output
- The quantity where marginal revenue last covers marginal cost. Beyond it every extra unit shrinks profit even while revenue keeps rising.
FAQ
Common questions
Marginal cost is the change in total cost divided by the change in quantity: MC = ΔTC ÷ ΔQ. Take the total cost at the lower output, take it again at the higher output, subtract, and divide by the extra units produced. If raising output from 100 to 120 loaves lifts total cost from $5,000 to $5,600, marginal cost is $600 ÷ 20 = $30 a loaf. Nothing that stayed the same at both output levels — rent, salaries, insurance — survives the subtraction, which is exactly the point.
Marginal revenue uses the same shape as marginal cost, applied to the top line: MR = ΔTR ÷ ΔQ. Find total revenue at each of the two output levels, subtract, and divide by the change in units sold. Selling a second tutoring session that takes weekly income from $25 to $45 gives a marginal revenue of $20. Note that this is below the $25 the first session earned — a discount to move extra volume always drags marginal revenue under the headline price.
Marginal profit is what one more unit adds to profit: MP = MR − MC, marginal revenue minus marginal cost. It can also be computed directly as the change in total profit divided by the change in quantity, and both routes give the same number. A positive marginal profit means the next unit is worth making; a negative one means producing it shrinks profit even if total revenue keeps climbing.
Because marginal profit is MR − MC, every unit where marginal revenue exceeds marginal cost adds to profit and should be produced, and every unit where marginal cost exceeds marginal revenue subtracts from it and should not be. Profit therefore keeps rising until the two meet and starts falling immediately afterwards. The peak sits at the last output where marginal revenue still covers marginal cost — which is what MR = MC means in practice.
Average total cost is TC ÷ Q, the cost per unit across everything you have made. Marginal cost is ΔTC ÷ ΔQ, the cost of the next unit alone. They answer different questions and rarely match. The relationship is mechanical: while marginal cost sits below average cost it pulls the average down, and once it rises above the average it pushes it up — so the marginal cost curve always cuts the average total cost curve at the average's lowest point.
Diminishing marginal returns. Early on, extra output uses idle capacity and marginal cost usually falls. Past a point the fixed factors — floor space, machinery, supervision — are stretched, so each additional unit needs more overtime, more rush shipping, or a less efficient line, and it costs more than the one before. That is why the marginal cost curve is drawn as a U: falling, bottoming out, then rising steeply.
No, as long as they genuinely stay fixed over the range you are looking at. Fixed costs appear identically in the total cost at both output levels, so they cancel in the subtraction ΔTC and cannot influence MC. The exception worth watching is a step cost — hiring a second shift, leasing another machine — which is fixed only up to a threshold. Cross that threshold and it lands in ΔTC as a lump, spiking marginal cost for that step.
Only under perfect competition, where a firm can sell any quantity it likes at the going price. Then each extra unit adds exactly the price to total revenue, so MR = P. Any firm that has to lower its price to sell more — which is nearly all of them — earns less on the extra unit and less on every unit it was already selling, so marginal revenue falls below price and keeps falling as output rises.
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