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# Marginal Analysis by David A. Mayer

Economists like to think of people as little computers who always count the benefit of their decisions versus the cost of those decisions. Because you usually make decisions one at a time, economists refer to the benefit of a decision as marginal benefit. Marginal benefit can be measured in dollars or utils, whichever you prefer. Utils are the amount of utility or happiness you get from doing something. They can be converted into dollars easily.

Say that you like to swim laps in the pool for an hour. How many utils do you receive from swimming laps? How much would you have to be paid to not swim laps? If your friend were to keep offering you ever increasing amounts of money to not swim in the pool, then it is probably safe to assume that the dollar amount you accept to not swim in the pool is at least equal to the amount of happiness or utility you would have received had you taken a swim. If it takes \$20 to keep you from swimming, then you value swimming no more than \$20. Swimming is worth 20 utils to you.

Marginal cost is a related concept. Marginal cost is simply what it costs to either produce or consume one extra unit of whatever it is you are producing or consuming. Go back to the swimming example. Assume that swimming in the pool has a marginal cost of \$5. If you earn 20 utils from swimming, would you pay \$5 to earn \$20 worth of benefit? Of course you would. Now assume that swimming in the pool costs \$20.01. Would you spend \$20.01 to earn \$20 worth of benefit? Probably not. Economists conclude that you will swim as long as the marginal benefit exceeds or equals the marginal cost. For you that means you will swim as long as the marginal cost is less than or equal to \$20. If the marginal benefit outweighs the marginal cost, you would probably do it. If the marginal benefit is less than the marginal cost, you probably would not do it. If the marginal benefit equals the marginal cost, it means you are indifferent.