Which of the following best describes marginal cost?

Marginal cost is defined as the additional cost incurred by producing one more unit of a good or service. This concept is fundamental in economics, particularly in understanding production decisions. When a firm is deciding how much to produce, it evaluates whether the revenue from selling an additional unit will exceed the marginal cost of producing that unit.

Understanding marginal cost is crucial for firms aiming to maximize profits, as it helps determine the optimal level of output. When production increases, the cost associated with producing that next unit — whether it involves extra resources, labor, or other inputs — is what constitutes the marginal cost.

The other options do not accurately capture this concept. For instance, stating "cost per average unit sold" refers to average cost, which is calculated by dividing total costs by the number of units produced, rather than focusing on the cost of producing one additional unit. The "total cost of fixed factors" does not connect directly to the concept of marginality, as fixed costs remain constant regardless of production level. Similarly, "cost of production per labor unit" might pertain more to labor productivity or labor costs but fails to encapsulate the specific idea of marginal cost related to additional unit production. Thus, the definition provided in the correct answer accurately reflects the