Marginal analysis in decision-making is best described as which of the following?

• A. Comparing the additional benefits and additional costs of a decision
• B. Making decisions based solely on sunk costs
• C. Choosing the option with the highest average cost
• D. Evaluating total costs and total benefits of all possible choices

Answer: (A)

Verified step by step guidance

1. Understand the concept of marginal analysis: it involves comparing the additional (or marginal) benefits and additional (or marginal) costs that result from a decision.
2. Recognize that sunk costs are costs that have already been incurred and cannot be recovered, so they should not influence current decision-making.
3. Distinguish between marginal analysis and average cost analysis; marginal analysis focuses on incremental changes, while average cost looks at total cost divided by quantity.
4. Note that evaluating total costs and total benefits of all possible choices is a broader approach, but marginal analysis specifically compares the incremental changes to make decisions.
5. Conclude that marginal analysis is best described as comparing the additional benefits and additional costs of a decision.