do not confuse the many marginal terms used in economics be mindful that the best quantity to operate at is when marginal revenue equals cost 
the overarching rule of marginal analysis is that it is usually in a company s best interest to perform an activity as long as the marginal revenue is greater than the marginal cost when marginal revenue and marginal cost are equal there is theoretically no financial incentive for the company to continue the activity though there may be non financial factors to consider consider a manufacturing example where it costs 2 to make a good whose marginal revenue is 5 for this unit the company makes 3 if the next unit costs 4 to make the company still earns a marginal profit because marginal revenue of 5 is greater than the marginal cost if the next unit were to cost 6 to make it would no longer be financially feasible to make and sell the good the point at which marginal revenue and marginal cost intersect is often called marginal equilibrium it is the point at which total company profit is maximized even if unit profit is not at its highest in more simple terms using the pizza example above you should continue to consume pizza as long as you think the marginal benefit you receive of each slice is worth at least the 2 you re paying per piece another important rule related to marginal analysis relates to companies that have different products if a company chooses to only dedicate resources to one product the potential marginal revenue of the other products is foregone in favor of a product likely with a diminishing marginal profit to avoid this every product should have an equal marginal revenue to maximize the amount of benefit obtained especially if there are resource constraints at play consider the table below outlining the marginal return received from two products if one unit of product a is consumed the consumer receives a marginal benefit of 100 if a third unit of product b is consumed the consumer receives a marginal benefit of 30 for that third unit based on the table above this second rule would dictate that the first unit consumed should be one unit of product a however we now know the marginal return of a second unit of product a only yields a return of 25 this second rule would call for the consumer to consume units of product b until the marginal revenue of the two products meet in this example the highest return would occur after 1 unit of product a and 3 units of product b have been consumed let s return once more to our pizza example instead of only consuming pizza imagine the marginal benefit of having a refreshing drink in between bites or slices the argument here is instead of trying to maximize your benefit received consuming one good you should try to have the marginal benefit received from the pizza considering its price equal to the marginal benefit received from a drink also considering its price marginal cost vs marginal benefita marginal benefit or marginal product is an incremental increase in a consumer s benefit in using an additional unit of something a marginal cost is an incremental increase in the expense a company incurs to produce one additional unit of something marginal benefits normally decline as a consumer decides to consume more and more of a single good for example imagine a consumer decides that she needs a new piece of jewelry for her right hand and she heads to the mall to purchase a ring she spends 100 for the perfect ring and then she spots another since she has no need for two rings she would be unwilling to spend another 100 on a second one she might however be convinced to purchase that second ring at 50 therefore her marginal benefit reduces from 100 to 50 from the first to the second good if a company has captured economies of scale the marginal costs decline as the company produces more and more of a good for example a company is making fancy widgets that are in high demand due to this demand the company can afford machinery that reduces the average cost to produce each widget the more they make the cheaper they become on average it costs 5 to produce a single widget but because of the new machinery producing the 101st widget only costs 1 therefore the marginal cost of producing the 101st widget is 1 there are many considerations to make regarding what defines marginal benefit for example that extra slice of pizza may not be physically healthy to consume but it may provide emotional comfort or allow for alimitations of marginal analysismarginal analysis derives from the economic theory of marginalism the idea that human actors make decisions on the margin underlying marginalism is another concept the subjective theory of value marginalism is sometimes criticized as one of the fuzzier areas of economics as much of what is proposed is hard to accurately measure such as an individual consumers marginal utility also marginalism relies on the assumption of near perfect markets which do not exist in the practical world still the core ideas of marginalism are generally accepted by most economic schools of thought and are still used by businesses and consumers to make choices and substitute goods modern marginalism approaches now include the effects of psychology or those areas that now encompass behavioral economics reconciling neoclassic economic principles and marginalism with the evolving body of behavioral economics is one of the exciting emerging areas of contemporary economics since marginalism implies subjectivity in valuation economic actors make marginal decisions based on how valuable they are in the ex ante sense this means marginal decisions might later be deemed regrettable or mistaken ex post this can be demonstrated in a cost benefit scenario a company might make the decision to build a new plant because it anticipates ex ante the future revenues provided by the new plant to exceed the costs of building it if the company later discovers that the plant operates at a loss then it mistakenly calculated the cost benefit analysis that said inaccurate calculations reflect inaccuracies in cost benefit assumptions and measurements predictive marginal analysis is limited to human understanding and reason when marginal analysis is applied reflectively however it can be more reliable and accurate example of marginal analysis in manufacturing