Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Identify the decision to be made
B
Assess the marginal costs and benefits
C
Compare the marginal costs to the marginal benefits
D
Make a decision based on the analysis
Understanding the Answer
Let's break down why this is correct
Answer
To conduct a marginal cost and benefit analysis, first, you need to identify the decision you are facing. Next, determine the additional costs that will come from making that decision, which are called marginal costs. After that, figure out the additional benefits you will gain from it, known as marginal benefits. Finally, compare the marginal costs to the marginal benefits; if the benefits outweigh the costs, it’s a good decision. For example, if you are deciding whether to produce one more unit of a product, calculate how much it will cost to produce that unit and what extra profit you will make from selling it.
Detailed Explanation
The first step is to clearly identify the decision you need to make. Other options are incorrect because Some might think you should assess costs and benefits first; Comparing costs to benefits seems logical, but you need to know what decision you're analyzing first.
Key Concepts
Marginal Cost and Benefit Analysis
Decision-Making in Economics
Resource Allocation
Topic
Marginal Cost and Benefit Analysis
Difficulty
medium level question
Cognitive Level
understand
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