## Marginal Analysis

Read this article to learn about one of the fundamental terms in economics: marginal analysis. Specifically, understand the concept of marginal benefit and marginal cost and what is meant in economics when we say that individuals make rational choices at the margin. Also, complete the problems in the "Try It" box and check your answers.

### Try It

• Not to go ahead with the project because the marginal cost it too high.
Incorrect. Considering the marginal cost without the marginal benefit can be misleading. The magnitude of the cost is less important than its relationship to the benefits. As long as potential benefits outweigh the cost, it is an action worth taking.
• to go ahead with the project because the marginal cost of the expansion project is low compared to other similar projects.
Incorrect. Considering the marginal cost without the marginal benefit can be misleading. The magnitude of the cost is less important than its relationship to the benefits. As long as potential benefits outweigh the cost, it is an action worth taking.
• 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).
Correct. An actions is worth taking when the marginal cost is less than the marginal benefit. The potential additional profit is greater than the added expenses.