Incremental Cost

The measured change in a firm's cost of production due to an additional activity pursued by the firm. Incremental costs can be measured by the cost difference among two business alternatives, or it added cost a firm must incur to expand its operations.  In the first case, the incremental costs would equal the difference among the production costs of two like products that differ on the basis of features only. In the second case, the incremental cost would be a measure of the cost of buying a new piece of equipment relative to the revenue that new piece of equipment enabled the firm to generate.