Which of the following best describes marginal cost and how it is calculated?

• A. Marginal cost is the total cost divided by the total quantity produced; it measures the average cost per unit.
• B. Marginal cost is the decrease in total cost when production is reduced by one unit; it is found by subtracting variable cost from total cost.
• C. Marginal cost is the difference between fixed cost and variable cost; it shows the cost of fixed inputs.
• D. Marginal cost is the increase in total cost that results from producing one additional unit of output; it is found by dividing the change in total cost by the change in quantity produced.

Answer: (D)

Verified step by step guidance

1. Understand the concept of marginal cost: Marginal cost represents the additional cost incurred when producing one more unit of a good or service.
2. Recognize that marginal cost is not an average but a change in cost associated with a change in output quantity.
3. Use the formula for marginal cost, which is the change in total cost divided by the change in quantity produced: \(\text{Marginal Cost} = \frac{\Delta \text{Total Cost}}{\Delta \text{Quantity}}\).
4. Note that total cost includes both fixed and variable costs, but marginal cost focuses on how total cost changes as output changes, typically influenced by variable costs.
5. Avoid confusing marginal cost with average cost or fixed costs; marginal cost specifically measures the incremental cost of producing one additional unit.