Final answer:
The correct answer is D) The expense of producing one additional unit. Marginal cost is calculated by dividing the change in total cost by the change in output, and it's used to determine if producing an additional unit is profitable.
Step-by-step explanation:
Marginal cost represents the expense of producing one additional unit of output. We calculate marginal cost by taking the change in total cost (which is the sum of fixed costs and variable costs) and dividing it by the change in output, for each possible change in output. Variable costs such as wages and raw materials are part of the calculation for marginal cost, while fixed costs such as mortgage payments remain constant regardless of output levels.
It's important to note that the marginal cost of the first unit of output is always the same as the total cost. Additionally, marginal costs are typically rising due to factors such as increased labor costs or material costs when output is expanded. A firm can compare the marginal cost to the additional revenue it gains from selling another unit to determine if the additional unit is contributing to profit.