Marginal cost of production

What it costs a high-cost producer to bring one more unit of a commodity to market, including the capital needed to sustain output.

Example

A spot price of 2,000 against an all-in cost of 1,450 puts the price 37.9310% above it.

Important

It is not a floor. Producers operate below cost for extended periods and low-cost producers keep going long after high-cost ones stop, so it indicates where supply eventually withdraws rather than where the price stops.

Related terms

• Commodity — A physical good that is substitutable unit for unit, so it trades at a single global price rather than on the merits of any particular producer.
• Spot price — The price at which the physical good changes hands today, set by how much of it exists and how much is being used.

Lessons that explain it

• Appraising one exposure: the drivers, the carry and what the product holds — Six checks. Two of them - the curve and what the product actually holds - decide more of a five-year outcome than any view about supply and demand, and both have exact published answers. (13 min)

All 578 terms in the Investing glossary