Marginal Analysis

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DEFINITION of 'Marginal Analysis'

An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions.

Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.

BREAKING DOWN 'Marginal Analysis'

For example, if you already exercise five times a week and are thinking about adding a sixth day, you would use marginal analysis to determine whether the benefits of the sixth day, such as additional calories burned, endurance gained and muscle built, would be worth the costs of the sixth day, such as giving up sleeping in on Saturdays, having less energy to do your other weekend activities, and increasing your risk of injury.

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RELATED FAQS
  1. How does a company make a spending decision using marginal analysis?

    A company can make a spending decision using marginal analysis by reviewing the effects of its marginal costs and marginal ... Read Full Answer >>
  2. How do companies use marginal analysis?

    Marginal analysis is the technique companies utilize when they have a cost-benefit approach to making resource allocation ... Read Full Answer >>
  3. How reliable or accurate is marginal analysis?

    Marginal analysis is designed to show how economic reasoning allows actors to accomplish more by understanding limits on ... Read Full Answer >>
  4. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
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