Getting other half off’ deal. At the theater

Getting the best advantage for a
business is the foundation or underlining factor that all businesses aim for. In
understanding the importance of marginal analysis, as it relates to decision
making, a business may very well be on their way to success.  It is said that marginal analysis is an
analysis of how individuals, businesses, and government make decisions. Basically,
they are interested in additional benefits and additional costs. In addition,
it also analyses both benefit versus the cost of the marginal unit of the goods
as compared to the inputs which are allocated.  Marginal analysis is a decision-making tool
for comparing the additional or marginal benefits of a course of action to the
additional or marginal costs. It is said that the best decisions are made at
the margin.

Marginal Analysis is important in decision
making for several reasons; such as (a) Maximize
benefits of Output – Marginal analysis is used to assist people in
allocating their scarce resources to maximize the benefits of the output
produce. A business may be faced with a decision whether to hire more workers.
For instance, they would compare the additional revenue that an additional
worker may generate for their company for the additional cost of hiring. If the
additional worker would bring in more marginal revenue than marginal cost, then
the business will decide to hire the additional worker. (b) Implementing Pricing Strategies – Marginal analysis also helps
businesses increase marginal revenues through the use of various pricing
strategies.  For examples, a business may
decide to give a ‘buy one get the other half off’ deal. At the theater if you
buy one popcorn, you get the second at half off. This is because the consumer
is likely to buy a second bag at half off as oppose to not buying another bag
at all. (c) Comparing Multiple Options – Businesses may be
faced with two potential investments, but may have allocated funding for only
one of the investment. This is where marginal analysis would play a role in the
decision-making process. After analyzing the costs and estimated benefits
associated with each option, a decision would be determined based on the option
that will result in the higher profits when compared to the other. (d) Practical Application– Marginal
analytics is practical when it comes to decision making, it is the basis for
which a company makes its decision. It provides actual results that optimize
the relationship between cost and benefits. It may be applied in setting prices
or evaluating incentives for staff. It evaluates the results of an incremental
change.

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            In
conclusion, the marginal analysis involves comparing costs versus benefits and
the approach to decision making is always to ask oneself, “Does the benefit
outweigh the cost?” If indeed the benefits exceeds the cost then by all means
you may proceed with your decision. Another approach that may prove to be
beneficial in decision making with the use of marginal analysis would be to
apply the “What If” scenarios.  Finally,
marginal analysis is important in decision making and may also be used by
individuals in their day to day lives when making different decisions. However,
they may not even realize the analysis they did before choosing the better
option.