<P> In economics, marginal cost is the change in the opportunity cost that arises when the quantity produced is incremented by one unit, that is, it is the cost of producing one more unit of a good . Intuitively, marginal cost at each level of production includes the cost of any additional inputs required to produce the next unit . At each level of production and time period being considered, marginal costs include all costs that vary with the level of production, whereas other costs that do not vary with production are considered fixed . For example, the marginal cost of producing an automobile will generally include the costs of labor and parts needed for the additional automobile and not the fixed costs of the factory that have already been incurred . In practice, marginal analysis is segregated into short and long - run cases, so that, over the long run, all costs (including fixed costs) become marginal . </P> <P> If the cost function C (\ displaystyle C) is differentiable, the marginal cost M C (\ displaystyle MC) is the first derivative of the cost function with respect to the quantity Q (\ displaystyle Q). </P> <Dl> <Dd> M C (Q) = d C d Q (\ displaystyle MC (Q) = (\ frac (\ dC) (\ dQ))) </Dd> </Dl>

What relevance do the terms average price and marginal price have to the concept of externalities