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Marginal cost and marginal revenue practice
Marginal analysis asks what changes when one more unit is produced or sold. Marginal cost and revenue compare changes in totals, not their average levels.
By ExamCat · Original study lesson · Published September 24, 2026
Understand the method
For a discrete change, MC = Δtotal cost/Δquantity and MR = Δtotal revenue/Δquantity. Extra units raise profit when their additional revenue exceeds their additional cost, within the model’s constraints. Check the size of the quantity increment.
Worked example, step by step
Production rises from 10 to 11 units. Total cost rises from $70 to $78 and total revenue from $100 to $112.
- Marginal cost for the extra unit is $8.
- Marginal revenue is $12.
- Profit rises by $12 − $8 = $4.
- Total profit changes from $30 to $34, confirming the marginal calculation.
A mistake to watch for
An average cost of $7 at ten units is not the marginal cost of the eleventh. Fixed and variable components affect totals differently, and a profitable additional unit does not necessarily erase past losses.
Try it yourself: three questions
Write an answer before opening the explanation. For calculations, keep your units and intermediate steps; for concepts, state the reason for your choice.
1. Cost rises $30 when output rises by three units. What is average marginal cost over that increment?
Show answer and explanation
$10 per additional unit over that three-unit interval. Individual unit costs might differ.
2. MR is $9 and MC is $12 for the next unit. What happens to profit if it is produced and sold?
Show answer and explanation
Profit decreases by $3 for that unit, under the stated figures.
3. If fixed cost rises but variable production costs are unchanged, must marginal cost rise?
Show answer and explanation
Not from that fixed-cost change alone. Marginal cost concerns the additional cost caused by changing output.
Build your next practice session
Mark the first step where your reasoning differed from the explanation. Turn that step into a question, answer it without looking, then change one condition in the example and explain what would change. A correct guess is a reason to revisit the method.
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