Marginal analysis

Marginal analysis compares the additional benefit and cost of a small change in an action. It helps determine whether that change improves an outcome.

Marginal benefit: The additional benefit produced by one more unit of an activity or resource. It measures the gain on the benefit side of each proposed change.
Profit maximization: The choice of output or input levels that yields the greatest difference between revenue and cost. A firm can test whether one more unit raises profit by comparing added revenue and cost.
Derivative: A measure of how a function changes as its input changes by an infinitesimal amount. In continuous models, derivatives express the rates used to compare marginal quantities.
Total analysis: An evaluation of an action based on its overall benefits and costs rather than incremental changes. It asks whether an entire activity is worthwhile, not whether its next small increment is.
Marginal cost: The additional cost incurred by producing or consuming one more unit. It measures the sacrifice that must be weighed against marginal benefit.
Consumer choice: The study of how people allocate limited resources among goods and services. Consumers compare the extra satisfaction from a purchase with its price and alternatives.
Finite difference: The change in a quantity between two distinct values of its input. Discrete choices use finite changes when actions cannot vary infinitesimally.
Average cost: Total cost divided by the number of units produced or consumed. Average cost describes the whole output level, while marginal cost concerns its next unit.
Marginal decision rule: A rule to continue an activity when its marginal benefit exceeds its marginal cost. It converts the comparison into a practical choice about whether to change an action.
Cost-benefit analysis: A method for evaluating choices by comparing their expected benefits and costs. It applies incremental comparisons to policies and projects, often including nonmarket effects.

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