What happens to marginal cost if the price of a variable input decreases?

When the price of a variable input decreases, the marginal cost of producing additional units of a good or service typically falls. This is because marginal cost reflects the additional cost incurred from producing one more unit of output. In many production scenarios, variable inputs—such as labor or raw materials—are essential components of this cost.

If the price of a variable input, such as labor, decreases, it becomes cheaper to employ that input in the production process. Consequently, producing an additional unit requires less expenditure, thus reducing the marginal cost. This is particularly important in a competitive market where producers strive to keep costs low in order to maintain or increase their profitability.

As a result, with the decrease in the cost of variable inputs, firms can produce the same level of output at a lower cost for each additional unit, leading to a decrease in the marginal cost associated with production. This represents a fundamental principle of microeconomics, illustrating the relationship between input costs and overall production costs.