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

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  3. Insights

    Explaining Marginal Utility

    Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.
  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. Investing

    Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
  6. Investing

    The Advantages Of SPAN Margin

    Find out how it provides futures and commodity option strategists with more bang for their margin buck!
  7. Trading

    A Guide To Day Trading On Margin

    Buying on margin is a good option if you don't have the cash to day trade.
  8. Financial Advisor

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  3. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  4. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  5. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  6. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
Trading Center