Marginal cost refers to the additional cost incurred in producing one more unit of a good or service. It is the extra cost that arises from increasing the output of a production process by one unit. This includes both the variable costs, such as the cost of raw materials and labor, as well as any additional fixed costs that are incurred, such as the cost of equipment or facilities. The formula for calculating marginal cost is the change in total cost divided by the change in quantity produced.