Marginal Analysis
Economics
Moraine Park Technical
College
Introduction


Understanding Marginal Analysis
Learning Plan 2
Topics of Discussion






What is Marginal Analysis
Marginal Cost
Marginal Benefit
Marginal Utility
Principle of Diminishing Marginal Utility
Law of Diminishing Marginal Returns
Marginal



What is Marginal?
Marginal means additional, extra, and
incremental
Every choice has cost and benefit
Marginal Cost



What is Marginal Cost?
Marginal cost is the choice that includes
the extra cost to you over and above the
costs you have already incurred.
What is your marginal cost in this class?
Other Cost



Fixed or Sunk Costs (FC)--Cost that
have already been incurred. Or cost that
do not vary with changes in output.
Variable Costs (VC)--Cost which
increase with the level of output.
Total Costs (TC)--Cost that is the sum of
fixed and variable costs at each level of
output.
Other Cost (Continue)



Average Fixed Cost (AFC) is the sum of
dividing total fixed cost by the
corresponding output.
Average Variable Cost (AVC) is the sum
of dividing total variable cost by the
corresponding output.
Average Total Cost (ATC) is the sum of
dividing total cost by the corresponding
output.
Marginal Benefit



What is Marginal Benefit
Marginal Benefit is that choice that
includes the extra benefit to you over
and above the benefits you have already
experienced.
What is your marginal benefit in this
class?
Rule of Marginal
Benefit/Cost

If the (expected) marginal benefit of
doing something is greater than or equal
to the (expected) marginal cost,-------------> do

it
If the (expected) marginal cost of doing
something is greater than the
(expected) marginal benefit,-------------->
don’t do it
Rule of Marginal Benefit/Cost
If
MB=or>C, yes
If MC>MB, no
Marginal Utility



What is Marginal Utility?
Marginal Utility means extra or additional
satisfaction
Example of marginal utility
Principle of Diminishing
Marginal Utility


What is DMU?
Diminishing Marginal Utility means that
the more we already have of something,
the less satisfaction we will get from an
additional unit of it.
Law of Diminishing Marginal
Returns

The incremental benefit starts to
decrease as you continue to increase
the inputs. (time, effort, money)