Which of the following does marginal analysis primarily help a firm to determine?

• A. The average cost of production for each unit
• B. The total revenue generated from all units sold
• C. The fixed costs incurred by the firm
• D. The optimal level of output where marginal cost equals marginal benefit

Answer: (D)

Verified step by step guidance

1. Understand that marginal analysis involves comparing the additional benefits and additional costs of producing one more unit of output.
2. Recognize that marginal cost (MC) is the cost of producing one additional unit, while marginal benefit (MB), often represented by marginal revenue (MR), is the additional revenue gained from selling one more unit.
3. Identify that the firm aims to maximize profit by producing up to the point where the marginal cost equals the marginal benefit (MC = MB). Producing beyond this point would add more cost than benefit, reducing profit.
4. Note that marginal analysis does not focus on average cost, total revenue, or fixed costs directly, but rather on the incremental changes to cost and benefit.
5. Conclude that marginal analysis primarily helps a firm determine the optimal level of output where marginal cost equals marginal benefit, ensuring profit maximization.