Managerial Economics

Marginal Analysis

Economists analyze relationships like revenue functions from the perspective of how the function changes in response to a small change in the quantity. These marginal measurements not only provide a numerical value to the responsiveness of the function to changes in the quantity but also can indicate whether the business would benefit from increasing or decreasing the planned production volume and in some cases can even help determine the optimal level of planned production.

The marginal revenue measures the change in revenue in response to a unit increase in production level or quantity. The marginal cost measures the change in cost corresponding to a unit increase in the production level. The marginal profit measures the change ...