how to perform a marginal analysis
marginal analysis is as simple as taking the margin benefit of an outcome and subtracting the marginal cost however this analysis may be difficult to assess as there are many variables and moving parts to consider to perform a marginal analysis you should first understand the fixed and variable costs of an activity because the fixed costs are not likely to change your marginal cost will often be equal to your variable expenses next you can begin marginal analysis by finding the marginal cost and the marginal expense of an activity each will simply be the change in cost or benefit for every unit consumed or acquired note that while one aspect may remain the same either the benefit or the cost may be constant one aspect will often be variable consider the example of consuming pizza at 2 slice in this example marginal cost is easy to quantify as every additional slice of pizza has a marginal cost equivalent to 2 on the other hand marginal benefit may be more difficult to quantify if you haven t eaten all day and are hungry you may state that the first slice of pizza you eat is worth 10 to you if this is the case marginal analysis has led you the net benefit equal to the value of 8 to continue performing marginal analysis consider how both the benefit and the cost will change with each slice of pizza consumed if each slice costs 2 your marginal cost will always be 2 however as you eat more pizza you ll become full in fact there will be a point where you may get sick and begin to have negative marginal benefit for each additional slice eaten rules of marginal analysis