Getting other half off’ deal. At the theater

Getting the best advantage for abusiness is the foundation or underlining factor that all businesses aim for. Inunderstanding the importance of marginal analysis, as it relates to decisionmaking, a business may very well be on their way to success.

 It is said that marginal analysis is ananalysis 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 goodsas compared to the inputs which are allocated.  Marginal analysis is a decision-making toolfor comparing the additional or marginal benefits of a course of action to theadditional or marginal costs.

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It is said that the best decisions are made atthe margin. Marginal Analysis is important in decisionmaking for several reasons; such as (a) Maximizebenefits of Output – Marginal analysis is used to assist people inallocating their scarce resources to maximize the benefits of the outputproduce. A business may be faced with a decision whether to hire more workers.For instance, they would compare the additional revenue that an additionalworker may generate for their company for the additional cost of hiring. If theadditional worker would bring in more marginal revenue than marginal cost, thenthe business will decide to hire the additional worker. (b) Implementing Pricing Strategies – Marginal analysis also helpsbusinesses increase marginal revenues through the use of various pricingstrategies.  For examples, a business maydecide to give a ‘buy one get the other half off’ deal.

At the theater if youbuy one popcorn, you get the second at half off. This is because the consumeris likely to buy a second bag at half off as oppose to not buying another bagat all. (c) Comparing Multiple Options – Businesses may befaced with two potential investments, but may have allocated funding for onlyone of the investment.

This is where marginal analysis would play a role in thedecision-making process. After analyzing the costs and estimated benefitsassociated with each option, a decision would be determined based on the optionthat will result in the higher profits when compared to the other. (d) Practical Application– Marginalanalytics is practical when it comes to decision making, it is the basis forwhich a company makes its decision. It provides actual results that optimizethe relationship between cost and benefits.

It may be applied in setting pricesor evaluating incentives for staff. It evaluates the results of an incrementalchange.             Inconclusion, the marginal analysis involves comparing costs versus benefits andthe approach to decision making is always to ask oneself, “Does the benefitoutweigh the cost?” If indeed the benefits exceeds the cost then by all meansyou may proceed with your decision. Another approach that may prove to bebeneficial in decision making with the use of marginal analysis would be toapply the “What If” scenarios.  Finally,marginal analysis is important in decision making and may also be used byindividuals in their day to day lives when making different decisions.

However,they may not even realize the analysis they did before choosing the betteroption.   

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