What is the increase in total cost from producing one additional unit of a good called?

The increase in total cost from producing one additional unit of a good is referred to as marginal cost. This concept is fundamental in economics, particularly in production and pricing strategies. Marginal cost represents the change in total cost that occurs when the output level is increased by one unit. It is crucial for firms when making decisions about production levels, as understanding whether the marginal cost of producing an additional unit is greater or less than the price they can charge helps them determine profitability.

When assessing production, businesses look at marginal cost to find the optimal level of output where they can maximize profits. If the price they can charge for an additional unit exceeds the marginal cost, it would be beneficial to produce more. Conversely, if the marginal cost exceeds the price, it might be wiser to reduce output.

Average cost, on the other hand, pertains to the total cost divided by the number of goods produced, and total cost simply refers to the overall expense incurred in production without breaking it down into marginal terms. Direct cost generally refers to expenses directly tied to the production of goods, such as materials and labor, but does not specifically address the incremental cost of producing one more unit.