We’ll assume that each additional year of schooling costs Alex $10,000 in explicit costs—tuition, interest on a student loan, and so on. In addition to the explicit costs, he also has an implicit cost—the income forgone by spending one more year in school.

Unlike Alex’s explicit costs, which are constant (that is, the same each year), Alex’s implicit cost changes each year. That’s because each year he spends in school leaves him better trained than the year before; and the better trained he is, the higher the salary he can command. Consequently, the income he forgoes by not working rises each additional year he stays in school. In other words, the greater the number of years Alex has already spent in school, the higher his implicit cost of another year of school.

Table 9-4 contains the data on how Alex’s cost of an additional year of schooling changes as he completes more years. The second column shows how his total cost of schooling changes as the number of years he has completed increases. For example, Alex’s first year has a total cost of $30,000: $10,000 in explicit costs of tuition and the like as well as $20,000 in forgone salary.

The second column also shows that the total cost of attending two years is $70,000: $30,000 for his first year plus $40,000 for his second year. During his second year in school, his explicit costs have stayed the same ($10,000) but his implicit cost of forgone salary has gone up to $30,000. That’s because he’s a more valuable worker with one year of schooling under his belt than with no schooling.

Likewise, the total cost of three years of schooling is $130,000: $30,000 in explicit cost for three years of tuition plus $100,000 in implicit cost of three years of forgone salary. The total cost of attending four years is $220,000, and $350,000 for five years.

The change in Alex’s total cost of schooling when he goes to school an additional year is his marginal cost of the one-year increase in years of schooling. In general, the marginal cost of producing a good or service (in this case, producing one’s own education) is the additional cost incurred by producing one more unit of that good or service. The arrows, which zigzag between the total costs in the second column and the marginal costs in the third column, are there to help you to see how marginal cost is calculated from total cost. Similarly, total cost can be calculated from marginal cost: the total cost of a given quantity is the sum of the marginal costs of that quantity and of all of the previous ones. So the total cost of three years of schooling is $30,000 + $40,000 + $60,000 = $130,000; that is, the marginal cost of year 1 plus the marginal cost of year 2 plus the marginal cost of year 3.

As already mentioned, the third column of Table 9-4 shows Alex’s marginal costs of more years of schooling, which have a clear pattern: they are increasing. They go from $30,000, to $40,000, to $60,000, to $90,000, and finally to $130,000 for the fifth year of schooling. That’s because each year of schooling would make Alex a more valuable and highly paid employee if he were to work. As a result, for-going a job becomes much more costly as he becomes more educated. This is an example of what economists call increasing marginal cost, which occurs when each unit of a good costs more to produce than the previous unit.

Figure 9-1 shows the marginal cost curve, a graphical representation of Alex’s marginal costs. The height of each shaded bar corresponds to the marginal cost of a given year of schooling. The red line connecting the dots at the midpoint of the top of each bar is Alex’s marginal cost curve. Alex has an upward-sloping marginal cost curve because he has increasing marginal cost of additional years of schooling.

Although increasing marginal cost is a frequent phenomenon in real life, it’s not the only possibility. Constant marginal cost occurs when the cost of producing an additional unit is the same as the cost of producing the previous unit. Plant nurseries, for example, typically have constant marginal cost—the cost of growing one more plant is the same, regardless of how many plants have already been produced. With constant marginal cost, the marginal cost curve is a horizontal line.

There can also be decreasing marginal cost, which occurs when marginal cost falls as the number of units produced increases. With decreasing marginal cost, the marginal cost line is downward sloping. Decreasing marginal cost is often due to learning effects in production: for complicated tasks, such as assembling a new model of a car, workers are often slow and mistake-prone when assembling the earliest units, making for higher marginal cost on those units. But as workers gain experience, assembly time and the rate of mistakes fall, generating lower marginal cost for later units. As a result, overall production has decreasing marginal cost.

Finally, for the production of some goods and services the shape of the marginal cost curve changes as the number of units produced increases. For example, auto production is likely to have decreasing marginal costs for the first batch of cars produced as workers iron out kinks and mistakes in production. Then production has constant marginal costs for the next batch of cars as workers settle into a predictable pace.

But at some point, as workers produce more cars, marginal cost begins to increase as they run out of factory floor space and the auto company incurs costly overtime wages. This gives rise to what we call a “swoosh”-shaped marginal cost curve—a topic we discuss in Chapter 11. For now, we’ll stick to the simpler example of an increasing marginal cost curve.