Although many decisions in economics are “either–or,” many others are “how much.” Not many people will give up their cars if the price of gasoline goes up, but many people will drive less. How much less? A rise in corn prices won’t necessarily persuade a lot of people to take up farming for the first time, but it will persuade farmers who were already growing corn to plant more. How much more?

Recall from our principles of microeconomics that “how much” is a decision at the margin. So to understand “how much” decisions, we will use an approach known as marginal analysis. Marginal analysis involves comparing the benefit of doing a little bit more of some activity with the cost of doing a little bit more of that activity. The benefit of doing a little bit more of something is what economists call its marginal benefit, and the cost of doing a little bit more of something is what they call its marginal cost.

Why is this called “marginal” analysis? A margin is an edge; what you do in marginal analysis is push out the edge a bit and see whether that is a good move. We will study marginal analysis by considering a hypothetical decision of how many years of school to complete. We’ll consider the case of Alex, who studies computer programming and design. Since there are many computer languages, app design methods, and graphics programs that can be learned one year at a time, each year Alex can decide whether to continue his studies or not.

Unlike Ashley, who faced an “either–or” decision of whether to get a teaching degree, Alex faces a “how much” decision of how many years to study computer programming and design. For example, he could study one more year, or five more years, or any number of years in between. We’ll begin our analysis of Alex’s decision problem by defining Alex’s marginal cost of another year of study.