1.4 Marginal Analysis and Decision-Making Models

Making decisions based on total costs and benefits

Making decisions based on additional (incremental) costs and benefits

Making decisions without considering costs

Making decisions based on past experiences

Society has unlimited wants and limited resources

Everyone makes decisions by comparing marginal benefits and marginal costs

Every choice has no cost

Real-life situations can be explained through simplified models and graphs

Each slice of pizza gives more and more additional benefit

Each slice of pizza gives less and less additional benefit

The cost of each slice of pizza increases

The total benefit of all pizza slices increases

MC decreases while MB increases

MC increases while MB decreases

Both MC and MB increase

Both MC and MB decrease

When MB < MC

When MB = MC

When MB > MC

When MC = 0

Marginal benefit exceeds marginal cost

Marginal cost exceeds marginal benefit

Total benefit is maximized

No additional cost is incurred

Where MB > MC

Where MB < MC

Where MB = MC

Where MC = 0

The total satisfaction from consuming all units of a good or service.

The additional satisfaction or benefit a consumer gets from consuming one more unit of a good or service.

The cost of producing one more unit of a good or service.

The decrease in satisfaction from consuming additional units of a good or service.