CBA-2.B—a. Define marginal analysis and related terms. b. Explain a decision using marginal analysis (using a table or a graph when…

a. Define marginal analysis and related terms. b. Explain a decision using marginal analysis (using a table or a graph when appropriate).

• Marginal analysis involves comparing the additional benefit of increasing a given activity with the additional cost. Comparing marginal benefit (MB) with marginal cost (MC) helps individuals (firms) decide whether to increase, decrease, or maintain their consumption (production) levels.
• The optimal quantity at any point in time does not depend on fixed costs (sunk costs) or fixed benefits that have already been determined by past choices.
• The optimal quantity is achieved when marginal benefit is equal to marginal cost or where total benefit is maximized.
• Enduring understanding CBA-2: To determine the optimal level at which to pursue an activity whose total benefits exceed total cost, rational economic agents compare marginal benefits and marginal costs.