What term is used to describe the increase in the cost of producing an additional unit of a good or service?

The term that describes the increase in the cost of producing an additional unit of a good or service is marginal cost. It represents the additional cost incurred when a company decides to produce one more unit of output. Understanding marginal cost is crucial for businesses as it helps in making decisions about production levels and pricing strategies.

When analyzing production, businesses consider how the cost changes with the level of output. Marginal cost is typically calculated by taking the change in total cost that results from producing one more unit and dividing it by the change in the quantity of output. This is important for optimizing production efficiency and maximizing profit, as it tells firms how much it will cost them to expand production and whether that expansion is financially viable.

Other terms such as average cost, fixed cost, and variable cost refer to different concepts within cost analysis. Average cost relates to the total cost divided by the number of goods produced. Fixed cost is associated with expenses that do not change regardless of the level of production, while variable cost directly varies with production volume. Recognizing the distinction between these terms helps businesses make informed decisions regarding their production processes and pricing.