What does marginal cost refer to?

Marginal cost refers to the additional cost incurred when producing one more unit of a good or service. This concept is crucial in economics and marketing as it helps businesses make decisions about scaling production. When a company evaluates whether to increase output, understanding the change in cost associated with producing an additional unit allows it to determine if the potential revenue from selling that extra unit will exceed the cost of producing it.

In the context of the other options, total cost of production encompasses all costs involved in manufacturing, thus providing a broader view rather than focusing on the incremental aspect. Average cost per unit divides the total cost by the number of units produced, giving insight into cost distribution rather than the specific cost of producing one additional unit. Variable cost per unit pertains to costs that change directly with production volume, but it does not specifically capture the incremental nature of the cost associated with producing just one additional unit. Therefore, the emphasis on change in cost from producing one more unit accurately describes marginal cost and its significance in decision-making processes.