Marginal Analysis

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Peyton and Paul are brothers who own a manufacturing business and are considering opening a new distribution center. They estimate that the project would add $5 million in expenses and that their profit would increase by $1.5 million per year for the next 5 years (other things equal). Peyton and Paul decide

• Not to go ahead with the project because the marginal cost it too high.
• to go ahead with the project because the marginal cost of the expansion project is low compared to other similar projects.
  
• to go ahead with the project because the expected marginal benefit ($7.5 million over 5 years) is greater than the estimated marginal cost of the project ($5 million).