What refers to the cost incurred when producing one more unit of output?

The cost incurred when producing one more unit of output is known as marginal cost. This concept is crucial in economics and business because it helps decision-makers evaluate the additional cost associated with increasing production levels. Marginal cost reflects the change in total cost when an additional unit is produced, and it is key to determining the optimal level of production for maximizing profit.

By analyzing marginal costs, businesses can make informed choices about whether to increase production based on the price they can charge for additional units compared to the cost of producing them. This concept assists in determining the point at which producing additional products may no longer be financially beneficial. Understanding marginal cost enables firms to respond effectively to changes in demand and cost structures, ultimately impacting their pricing strategies and overall profitability.