Marginal Analysis

Marginal Analysis
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Marginal Analysis
Marginal analysis refers to the benefits that a company or individual accrues by adding an extra unit. In other terms, it entails comparing the potential merits and costs of undertaking a specific business activity. The primary goal of marginal analysis is determining if the benefits accrued outweigh the costs of an entire process of production.
The concept of marginal analysis is used by businesses to justify whether the establishment of a specific activity benefits an organization or not. For example, let’s assume that JetBlue Airlines’ ticket from London to New York is $650. If the cost of operating the aircraft is $170,000 and it has a capacity of 350 passengers, it means that JetBlue Airlines will have a profit of $57,500 when carrying a maximum number of people. However, in most cases, the aircraft departs with vacant seats. After a marginal analysis, JetBlue has realized that the cost to fly an additional passenger is $125. In this case, rather than JetBlue’s aircraft leaving with empty seats, the company has come up with a last-minute offer that charges $375. As such, by adding one individual on board, JetBlue generates a profit of $250 (“Marginal Analysis,” 2019). Consequently, marginal analysis shows whether a particular decision makes an economic sense.
Marginal analysis is useful in analyzing system complexities without losing the emphasis on maximizing p...