In order to answer this question, we first have to understand what marginal cost is. In economics, marginal cost refers to how much a firm’s costs change when its output goes up. In other words, it is the cost of producing the next unit (or, in this case, five units) of output.
Because marginal cost has to do with how much the cost of production changes, we do not need to know how much the fixed costs are and how much the variable costs are. We only need to look at total costs. Your teacher (or book) has told you what the fixed costs are to see whether you know that you should ignore that particular piece of information.
To find the marginal cost, all we have to do is see how much the total costs went up between two levels of output. When the business produced 30 pizzas per day, its total costs were $210. When the business produced 35 pizzas per day, its costs were $230. This means that the business’s total costs went up by $20 when its output rose from 30 to 35 pizzas per day. Therefore, the marginal cost at the output of 35 pizzas is $20 for the last five pizzas. (You could say that it is $4 per pizza, but that assumes each pizza had the same marginal cost, which is not necessarily true.)
If this concept remains unclear, please follow the link below, where you will find an interactive table that shows marginal costs for various levels of output and total costs.
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