Marginal cost is a calculation related to the field of production and is carried out based on economics which aims to determine the cost of increasing production units. To calculate this marginal cost, you must know the costs associated with production, such as fixed costs and variable costs. You can learn how to calculate marginal cost by using a formula.
Step
Method 1 of 3: Preparation for Calculations Using Formulas
Step 1. Calculate or make a chart that shows the amount of production costs and the number of units you produce
Make sure you have prepared the following data in the chart:
- Total Units. Fill in the first column of the chart with the number of units produced. The number of units can be increased by 1 unit, for example 1, 2, 3, 4, and so on or it can also be increased by a larger number, for example 1,000, 2,000, 3,000, and so on.
- Fixed costs and variable costs. During the production process there are always certain costs that must be incurred, for example rental costs which are fixed. Other costs, such as the cost of purchasing raw materials, are variable costs whose amount will follow the number of units produced. Create columns for each cost to the right of the Total Units column, then enter the numbers.
Step 2. Get a pen, paper, and calculator ready
You can also perform these calculations using an electronic worksheet; however, you will better understand this marginal cost calculation if you write down the formula first.
Method 2 of 3: Calculating Total Cost
Step 1. Create new columns to the right of the "Fixed Costs" and "Variable Costs" columns for the "Total Costs"
Step 2. Add up the fixed costs and variable costs for each number of units produced
Step 3. Enter this total cost number into the "Total Cost" column until all costs according to the number of units have been calculated
If you are using an electronic spreadsheet program, you can use a formula in the total cost column that will add up the fixed costs and variable costs in each row to calculate the total cost
Method 3 of 3: Using a Formula to Calculate Marginal Cost
Step 1. Write down the formula "Marginal Cost=Change in Total Cost/Change in Total Units
Step 2. Create a column to the right of the total cost column with the heading "Marginal Cost
The first row in this column will always be blank, because you won't be able to calculate marginal cost if no units are produced.
Step 3. Calculate the change in the total cost by subtracting the total cost in row 3 from the total cost in row 2
$40 minus $30.
Step 4. Calculate the change in total units by subtracting the total units in the 3rd row from the total units in the 2nd row
For example, 2 minus 1.
Step 5. Plug these numbers into the formula
For example, Marginal Cost=$10/1. In this case, the marginal cost is $10.
Step 6. Write this marginal cost in the second row in the column "Marginal Cost
Continue subtraction in the same way for each additional unit in the following rows.
