marginal analysis

Definition:
A method of analysis developed by neo-classical economists such as J.M. Clark, MARSHALL and Pareto, founded upon the concepts of marginal utility and marginal productivity. The essence of the approach is that attention is focused upon the effect of changes in the value of one variable arising from the addition of one more (marginal) unit to another variable. According to the theory one should continue to incur costs to the point when marginal revenue is exactly equivalent to the marginal cost necessary to create that revenue at which point profits will be maximized. Marginal analysis of this kind is often referred to as a contribution approach on the grounds that so long as marginal revenue exceeds marginal cost then the surplus is a contribution to fixed costs (which exist anyway) and profit.

Cross-References:
[Marshall, Alfred] [contribution analysis]

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