1.6 Marginal Analysis and Consumer Choice

• Marginal analysis is the process of comparing the marginal benefits to the marginal costs of a particular decision
• Marginal analysis helps firms make optimal choices by assessing whether the additional benefit exceeds the additional cost.
• What is the formula for marginal benefit?

  \frac{\Delta \text{Total Benefit}}{\Delta \text{Quantity}}</latex>
• If eating one slice of pizza brings 10 utility points and eating a second slice brings 18, the marginal benefit of the second slice is 8
• Match the aspect with its description:

  Marginal Benefit ↔️ Satisfaction from consuming one more unit

  Marginal Cost ↔️ Cost of producing one more unit
• What is the formula for marginal benefit?

  $\frac{\Delta \text{Total Benefit}}{\Delta \text{Quantity}}$
• If eating one slice of pizza brings 10 utility points and eating a second slice brings 18, the marginal benefit of the second slice is 8
• Match the aspect with its description:

  Marginal Benefit ↔️ Satisfaction from consuming one more unit

  Marginal Cost ↔️ Cost of producing one more unit
• What is the formula for marginal cost?

  \frac{\Delta \text{Total Cost}}{\Delta \text{Quantity}}</latex>
• Match the aspect with its focus:

  Marginal Cost ↔️ Production expense

  Marginal Benefit ↔️ Consumer satisfaction
• What do consumers compare to make decisions in marginal analysis?

  Marginal benefit and cost
• The decision rule for optimal consumption states that consumers maximize utility when marginal benefit equals marginal cost
• Optimal consumption occurs when the additional satisfaction equals the additional cost.
• If the marginal benefit of the third apple is $1.50 and the marginal cost is also $1.50, what has the consumer reached?

  Optimal quantity
• Match the aspect with its goal:

  Marginal Benefit ↔️ Equals MC

  Marginal Cost ↔️ Equals MB