What is the meaning of "marginal" in economic terms?

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yamaguchityler eNotes educator| Certified Educator

The term "Marginal" in economics is used extremely often. What it means, is essentially the next additional unit, product, person, or whatever else you're associating the term with.

For example, say you're reading an economics textbook and you come across the term "Marginal Profit." What this means, is the profit you will gain from selling one additional unit of good, after taking into account the marginal cost as well.

Another example, "Marginal Utility" can be explained as the additional utility a consumer receives from consuming one more additional unit of good.

The most used terms would most likely be Marginal cost, and marginal revenue. Businesses will place a lot of importance on these type of terms because companies not only want to maximize and minimize profit, but they also want to be efficient with what they do. If a marginal cost is increasing, while marginal revenue is decreasing, it wouldn't make any sense to continue to produce past the point where marginal cost is more than marginal revenue. Thus, by looking at the margins and not just at the final big picture of revenue vs cost, companies are able to adjust more quickly in the short run, and help their business reach optimal efficiency.

pohnpei397 eNotes educator| Certified Educator

I suppose the best one word equivalent for "marginal" is "additional."  Whenever you see the word "marginal" in economics, the person who wrote it is talking about something that will be added to what was there before.  Here are a couple of examples:

  • Marginal revenue is the amount of money that you get for producing one more unit of a good or service.  It is not the total revenue -- it is just how much more you will get for one more unit.
  • Marginal cost is the amount that it will cost you to make one more unit of a good or service.  Once again -- it is not the total -- it is just how much it will cost you to make the next unit.


Wiggin42 | Student

Marginal refers to the extra bit of whatever you're looking at. 

So marginal cost refers to the cost of producing one more extra good. Marginal costs tend to go down when you produce a lot of one thing. This explains the cheapness of bulk goods and services. 

Marginal benefit is the benefit (whether monetary or otherwise) you gain from producing or consuming one more thing. For instance, lets say you love marshmallows. However, after eating say, a hundred of them; that 101st marshmallow will not bring you nearly as much joy as the 1st marshmallow. 

Marginal cost, revenue, and profit functions are derivatives of the cost, revenue, and profit functions, respectively. 

tutukhan | Student

Marginal cost is the derivative of the sum of fixed costs and variable costs of production divided by the quantity produced. This measure of cost allows the producer to understand the cost required to produce each additional unit of output. Marginal costs are defined differently in the short and long term, due to the producer's inability to increase fixed costs in the short term.