# Marginal Cost: Definition, Formula, & Examples

Marginal cost is the change in total cost that arises when the quantity produced is incremented by one unit.

**Why is marginal cost important?**

Analyzing marginal cost helps businesses determine optimal production levels, set prices, and make informed decisions about resource allocation and profitability.

**An easy way to understand marginal cost is:**

Think of adding toppings to a pizza. Each additional topping, like pepperoni or mushrooms, adds a little extra cost to the overall price of the pizza.