The “how much” decision to be made | Applying marginal analysis | Arriving at the optimal quantity |
|---|---|---|
The retaiiler PalMart must decide on the size of the new store it is constructing in Beijing. | PalMart must compare the marginal benefit of enlarging the store by 1 square foot (the value of the additional sales it makes from that additional square foot of floor space) to the marginal cost (the cost of constructing and maintaining the additional square foot). | The optimal store size for PalMart is the largest size at which marginal benefit is greater than or equal to marginal cost. |
A physician must decide whether or not to increase the dosage of a drug in light of possible side effects. | The physician must consider the marginal cost, in terms of side effects, of increasing the dosage of a drug versus the marginal benefit of improving health by increasing the dosage. | The optimal dosage level is the largest level at which the marginal benefit of disease amelioration is greater than or equal to the marginal cost of side effects. |
A farmer must decide how much fertilizer to apply. | More fertilizer increases crop yield but also costs more. | The optimal amount of fertilizer is the largest quantity at which the marginal benefit of higher crop yield is greater than or equal to the marginal cost of purchasing and applying more fertilizer. |