Which of the following is a basic step in conducting marginal cost analysis?

• A. Comparing the additional cost of producing one more unit to the additional benefit received
• B. Calculating the total fixed costs for all units produced
• C. Determining the average cost per unit for the entire production
• D. Estimating the market demand for the product

Answer: (A)

Verified step by step guidance

1. Understand that marginal cost analysis involves examining the change in costs and benefits when producing one additional unit of a good or service.
2. Identify the marginal cost as the additional cost incurred from producing one more unit, which can be expressed as \(\Delta TC / \Delta Q\), where \(\Delta TC\) is the change in total cost and \(\Delta Q\) is the change in quantity produced (usually 1 unit).
3. Recognize that marginal benefit refers to the additional benefit or revenue gained from producing and selling one more unit.
4. The key step in marginal cost analysis is to compare the marginal cost to the marginal benefit to decide whether producing the additional unit is worthwhile.
5. Note that calculating total fixed costs, average costs, or estimating market demand are important in other analyses but are not the basic step in marginal cost analysis.