Marginal cost is the change in total cost divided by the change in quantity produced. It represents the additional cost of producing one more unit of a good or service. For example, a shoe company produced 300 units at $50 total cost, and then produced an additional 300 units at $40 more total cost. The marginal cost per unit is calculated as the change in total cost ($40) divided by the change in quantity (300 additional units), which equals $0.13 per unit. Marginal cost is used to determine the cost of increasing production levels.