Which statement best describes marginal analysis in microeconomics?

• A. Choosing the option with the lowest total cost regardless of the benefits it provides.
• B. Basing decisions only on sunk costs because they represent resources already spent.
• C. Comparing the additional (marginal) benefit of an action to its additional (marginal) cost to decide whether to take that action.
• D. Evaluating decisions by comparing average cost to average benefit.

Answer: (C)

Verified step by step guidance

1. Understand that marginal analysis in microeconomics involves comparing the additional benefits and additional costs of a decision, rather than looking at total or average values.
2. Recognize that sunk costs are costs that have already been incurred and cannot be recovered, so they should not influence marginal decision-making.
3. Recall that marginal benefit refers to the extra benefit gained from consuming or producing one more unit of a good or service.
4. Recall that marginal cost refers to the extra cost incurred from consuming or producing one more unit of a good or service.
5. Conclude that the best description of marginal analysis is the process of comparing the marginal benefit to the marginal cost to decide whether to undertake an action.