Question

In cost-benefit analysis, the costs and benefits are measured in monetary terms. Which method can be used to measure an incremental decision?

A.
time series analysis
B.
marginal analysis
C.
fixed cost analysis
D.
sales forecasting

Answer 1

Answer:

B. marginal analysis

Explanation:

Marginal analysis is the process of comparing additional benefits derived from the production of an extra unit against the cost associated with that unit. The marginal analysis is a decision-making tool that helps determine if the continuation of production or selling activities are profitable or not.

The concept of marginal analysis proposes that business activities should proceed until marginal benefits equal marginal costs.  Marginal benefits being the gains from the production of one more unit while marginal cost being expenses incurred in producing one more unit. A business will make losses or experience diminishing marginal returns when the marginal cost exceeds marginal benefits.