marginal cost business definition

The additional cost needed to produce or purchase one more unit of a good or service. For example, if a firm can produce 150 units of a product at a total cost of $5,000, and 151 units for $5,100, the marginal cost of the 151st unit is $100. Industries with sharply declining marginal costs tend to be made up of firms that engage in price wars to gain market share. For example, the airlines often discount fares to fill empty seats with customers from competing airlines. Also called incremental cost.