how does marginal analysis help business people in decision making? - Help.com

it’ll determine the profitability and viability of a proposed business set-up

how does marginal analysis help business people in decision making?

MARGINAL ANALYSIS

Since resources are scarce and we cannot have everything that we want, tough choices must be made. The concept of opportunity cost reminds us that every time we make a choice, something else must be given up. Economics provides us with a set of tools that can help us to make better choices. Often times, the best decision is made by weighing the marginal benefits aganist the marginal costs.

http://sorrel.humboldt.edu/~economic/…

Why do economists insist that rational people made decisions at the margin? The explanation is simple – the costs or benefits already incurred from doing some activity do not matter when you make future decisions. Those past costs and benefits may influence what you think future costs of benefits, however, it’s the future costs and benefits that everyone bases decisions on. For example, say you are deciding whether to go on and read the next section of this lesson right now. You will compare the marginal benefits of additional study right now with the costs of more study. You will weigh the marginal benefits (maybe a better homework grade) against the marginal costs (the things you’d give up by spending more time right now reading this lesson). If the marginal benefits were greater than or equal to the marginal costs, you would continue reading. In fact, you’d continue reading until the marginal benefits are equal to the marginal costs. Any more reading after that would cause marginal costs to become greater than marginal benefits, and would be irrational.

http://uwacadweb.uwyo.edu/rgodby/ECON…