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Why does marginal analysis lead to optimal or efficient quantities?
Why does marginal analysis lead to optimal or efficient quantities?
Expert Solution
Marginal analysis leads to optimal or efficient quantities because if an additional unit of production/consumption leads to more cost than benefit, then it is not worth taking on this decision. Similarly, if an additional unit of production/consumption leads to more benefits than costs, then it is worth committing to this economic action. In fact, following this logic this is repeated up until an additional unit of production/consumption leads to an equal amount of benefit and cost, because one more additional unit of production would lead to costs outweighing benefits which is not what is wanted.
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