Marginal Cost

Marginal cost refers to the increase in total cost resulting from producing or selling one additional unit of output, i.e., the derivative of total cost with respect to output. In foreign trade, marginal cost is often used in pricing decisions, capacity allocation, and profit analysis. When a company has idle capacity, as long as the export quotation is higher than the marginal cost, it can contribute to overall profit, which is known as marginal cost pricing. Use cases include: taking on additional orders, participating in international bidding, and cost accounting in response to anti-dumping investigations. Note: Marginal cost is different from average cost—it does not consider the allocation of fixed costs; long-term decisions need to cover all costs, otherwise losses may occur. Difference from variable cost: Marginal cost focuses only on the last unit, while variable cost is total variable cost. Difference from incremental cost: Incremental cost addresses the overall change of a decision alternative, while marginal cost addresses per unit of output. Foreign trade practitioners should note that in anti-dumping defense, marginal cost may be used to determine whether sales are below cost.