Marginal cost is the cost of producing one additional unit. If making 100 widgets costs $1,000 and making 101 widgets costs $1,008, the marginal cost of that 101st widget is $8. It is the extra cost of "one more."
Marginal cost typically follows a U-shaped curve. Initially, it falls as production becomes more efficient (workers specialize, bulk discounts kick in). But eventually, it rises due to diminishing returns — overtime wages, equipment strain, and crowded production lines push costs up.
The golden rule in economics: profit is maximized when marginal cost equals marginal revenue. If the marginal cost of producing one more pizza is $5 and customers pay $12, keep making pizzas. When marginal cost rises to $12, stop — any more and you lose money on each additional unit.