Marginal analysis is the investigation of the marginal benefits and the marginal cost of an activity. Marginal cost pertains to the extra cost incurred due to the addition of one unit. Whereas marginal benefit pertains to the extra benefit derived due to the addition of one unit. This concept has many real-life applications such as:

Profit maximization: Any firm that wants to maximize profit must apply the marginal analysis concept. Expansion must be encouraged until the output level where the marginal revenue and the marginal cost are equal. If the marginal cost of producing a good is greater than the marginal revenue earned then firms should not produce at that output level. Profits are maximized only at the level of output when the marginal cost and marginal revenue are equal

Decisions regarding purchasing a product: With the given income constraints if individuals want to expand their consumption they need to apply the concept of marginal analysis. The individual must analyze the marginal benefit it derives and the marginal cost that would be incurred with the purchase of the good. He must purchase the good only if the marginal benefit is greater than the marginal cost. This same condition applies to a firm also when it wants to expand and would like to invest in a new plant.