Final answer:
The marginal cost curve represents the extra cost for producing one additional unit of goods, which is essential in determining how producing more affects a company's profits by comparing it to the marginal revenue.
Step-by-step explanation:
The marginal cost curve displays the extra cost a seller incurs to produce one more unit of goods. To calculate marginal costs, the change in total cost or variable cost is divided by the change in output. These additional costs are often rising, as producing more units can increase expenses due to factors such as increased labor or materials costs.
Understanding the marginal cost is crucial for businesses as it helps them determine the level at which producing one more unit would contribute to, or detract from, their total profits. This is done by comparing the marginal cost of producing the additional unit with the marginal revenue gained by selling it. If marginal revenue exceeds marginal cost, the firm gains profit by producing an additional unit.