jaðarkostnaðurinn

Jaðarkostnaðurinn is the Icelandic term for marginal cost, the additional cost incurred by producing one more unit of output. It is a central concept in microeconomics and is defined as the change in total cost when output changes by one unit. The term combines jaðar-, edge or margin, with kostnaður, cost.

Calculation: MC = ΔTC/ΔQ. When output changes in discrete steps, MC is the change in total cost divided by the change in quantity between two adjacent levels. In continuous models, MC is the derivative dTC/dQ.

Typical behavior: MC often rises as output increases due to diminishing returns to the variable inputs in the short run. It can be constant or even decline over some ranges if there are economies of scale or changes in production technique, but the standard pattern is an upward-sloping MC curve beyond the point of minimum average variable cost.

Role in decision making: Firms use marginal cost to determine optimal production levels, pricing, and to analyze profitability. In competitive markets, production is expanded until price equals marginal cost (P = MC) and the supply curve is the portion of MC above AVC. Marginal cost also interacts with marginal revenue in profit-maximization analyses.

Limitations and notes: MC assumes other factors are held constant and may be unstable in the short run due to step costs, capacity constraints, or multi-product interactions. Data on total cost can be noisy, and MC is sensitive to the chosen time period and production method.

See also: fixed cost, variable cost, average cost, marginal revenue, supply.