From the table below, choose the optimum option using marginal analysis
Option Total Cost ($)
1 150
2 100
3 80
4 70
5 90
6 120
To arrive at an optimum decision using marginal analysis, marginal total costs are to be estimated. This is done in the following table.
Option Total Cost ($) Marginal Total Cost ($)
1 150 -
2 100 -50
3 80 -20
4 70 -10
5 90 20
6 120 30
Option 4 is the optimum option in this case. This is because it is the only option that moving toward makes the decision maker better off and moving away from it makes the decision maker worse off. In other words, according to the Principal of Optimization at the Margin, Option 4 is the optimum choice.
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