In marginal analysis, calculations of cost and benefit are always which of the following?

• A. Based on average values
• B. Based on total values
• C. Based on sunk costs
• D. Based on incremental changes

Answer: (D)

Verified step by step guidance

1. Understand that marginal analysis focuses on the additional or incremental changes in cost and benefit when making decisions.
2. Recognize that average values involve total values divided by quantity, which is different from marginal or incremental changes.
3. Recall that total values represent the sum of all costs or benefits, not the change from one unit to the next.
4. Know that sunk costs are past costs that cannot be recovered and should not affect marginal decision-making.
5. Conclude that marginal analysis calculations are based on incremental changes, meaning the change in cost or benefit from producing or consuming one more unit.