Next video:
Loading the player...

Marginal analysis is a general business and economics term describing a process of comparing a one-unit incremental cost increase of an activity with a corresponding increase in benefits.  In business, managers use marginal analysis to determine the level at which they should stop incurring more costs in order to generate the most revenue.  It is one of many tools used to maximize profits.

In economics, marginal analysis is used to study consumer and producer habits in order to predict future economic behavior. Using this type of analysis, economists are able to predict the effects of government initiatives targeted to help maintain a healthy economy.

There are many different types of marginal analysis, such as consumer marginal benefit analysis, the marginal propensity to consume, the law of diminishing marginal returns, and the marginal cost of production.  Even taxes are subject to marginal analysis through the study of marginal tax rates and their effect on economic activity.

Marginal analysis even happens on the individual level, often without the individual being aware that she’s doing marginal analysis.  For instance, Mary jogs three miles a day, five days a week.  She’s considering adding a sixth day.  Unbeknownst to her, she uses marginal analysis when she compares the additional health benefits from one more day of jogging versus the costs, such as loss of leisure time for that additional day and the additional wear and tear on her legs and knees. 

Related Articles
  1. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  2. Investing

    Explaining Initial Margin

    Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
  3. Financial Advisor

    Margin

    Find out exactly what margin is and why it's important.
  4. Small Business

    How Gross Margin Can Make or Break Your Startup

    Find out how your startup's gross margin can impact your business, including why a mediocre margin may spell disaster for a budding business.
  5. Insights

    Do Declining Corporate Margins Point To Recession in 2016?

    Learn how declining profit margins have foretold nearly every recession of the past 50 years, and analyze whether they may signal economic contraction in 2016.
  6. Investing

    Spreading The Word About Portfolio Margin

    An underused opportunity provided in an SEC rule can enhance returns and lower risk for spread traders.
Hot Definitions
  1. Five Cs Of Credit

    A method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics ...
  2. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  3. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  4. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  5. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  6. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
Trading Center