Overall marginal analysis can be concluded as an attempt to analyze to find the optimal value of the goals that have been set and whether these goals have limits to be able to make the most appropriate decisions from various alternative situations around us. Even marginal analysis can include changing the value of the activities carried out. This allows a manager to be able to make changes gradually until the changes made no longer provide optimal value. Marginal analysis includes calculating marginal benefit or profit marginal cost .
The Function of Marginal Analysis in Decision Making
- As long as the additional production and marginal costs do not affect existing units and prices, the production is necessary because it is profitable, only if the selling price exceeds the marginal cost.
- Fixed costs will change, as long as additional production is still within the existing capacity limits.
- The addition of fixed costs from fixed costs to original capacity becomes marginal costs in the following decisions.
Benefits of Marginal Analysis
Marginal analysis has benefits when dealing with specific problems in determining decisions such as, as follows:
- Closing a department,
- Division or section,
- Closing of a production unit,
- Self-producing or buying spare parts or raw materials,
- Expansion of factories or business units, and
- Accept or reject a special offer.
Types of Marginal Analysis Concepts
The concept of Marginal Analysis that we often encounter or hear in economic and business analysis, is as follows:
- Marginal Cost (MC): This is the amount of additional costs incurred to produce an additional unit of item.
- Marginal Revenue (MR): Represents the amount of additional costs obtained from the result of increasing one unit of goods.
- Marginal Utility (MU): This is an additional utility enjoyed by consumers when an additional unit of goods is added.
- Marginal Productivity (MP): This is an additional amount produced because there is an additional one factor of production.
- Marginal consumption (MPC)
- Saving Marginal (Marginal Propensity to save)