4. Marginal costs: concepts and practical calculations

4.1 General economic definitions

In the simplest case (a single, homogeneous product), marginal cost is equal to the cost of producing an additional unit of a good.

In the framework of marginalist analysis, with pure and perfect competition and maximizing behavior, selling at marginal cost maximizes overall surplus.

The diagram at 1 illustrates this intuitively.

The demand (respectively supply) curve corresponds to the quantity demanded (offered) in descending (ascending) order of utility (cost, i.e. with diminishing returns). The overall surplus is equal to the sum of the blue and gray areas on the diagram.

The...