marginal cost

Increase or decrease in the total cost of a production-run, from making one additional unit of an item. It is computed in situations where breakeven point has been reached: the fixed costs have already been absorbed by the already produced items and only the direct (variable) costs have to be accounted for. Marginal costs are variable costs comprising of labor and material costs, plus an estimated portion of fixed costs (such as administration overheads and selling expenses). In firms where average costs are fairly constant, marginal cost is usually equal to average cost. However, in industries that require heavy capital investment (automobile plants, airlines, mines) and have high average costs, it is comparatively very low. The concept of marginal cost is of critical importance in resource allocation because, for optimum results, the management must concentrate its resources where the excess of marginal revenue over the marginal cost is maximum. Also called choice cost, differential cost, or incremental cost.

I'm convinced television programming is going to go over the Internet, an open system that's the most efficient distribution network ever created. Everybody will be selling broadband access as a commodity. In such a world, a cable or satellite company packaging channels with some choice but not much and charging you 40% off the top is insane. At the end of the day, the cable company is the middleman. In a digital world, middlemen margins get crushed, because the marginal cost of transmitting a bit of information is zero. If you're a middle man with a closed architecture, you're in trouble. You might not feel it in 2006 or even 2008, but longer term you're doomed.