Browse MBAs SECTION 4: Managerial Economics

The Marginal Analysis Helper

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The Marginal Analysis Helper

Apply marginal thinking to this decision — should I do one more, or one
less?

The decision: [PRODUCE MORE / HIRE ANOTHER / ADD A LOCATION / SPEND MORE
ON X]
Marginal benefit info: [WHAT THE NEXT UNIT ADDS]
Marginal cost info: [WHAT THE NEXT UNIT COSTS]

Work through:
1. The marginal benefit and marginal cost of the next unit
2. The point where marginal cost starts exceeding marginal benefit
3. The optimal level of the activity
4. Why average cost/benefit is the wrong basis for this decision
5. The hidden marginal costs I might be ignoring

Teach the "compare the next one, not the average" habit as you go.

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