Marginal analysis


The process of identifying the benefits and costs of different alternatives by examining the incremental effect on total revenue and total cost caused by a very small (just one unit) change in the output or input of each alternative. Marginal analysis supports decision-making based on marginal or incremental changes to resources instead of one based on totals or averages.

The marginal benefit should always be greater than or equal to the marginal cost.  When the marginal cost exceeds the marginal benefit a decision to not buy, not hire, not do is considered to be an example of rational thought. 

To MAXIMIZE the net benefit of an activity or decision we should increase our marginal benefits until the MB=MC.

Thinking at the margin is what economists do BEST!  Marginal means the change in or additional ______. 




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