Cost-benefit analysis evaluates pros and cons to make informed decisions; economists recommend marginal analysis for maximizing benefits; cost analysis helps address key decision-making questions.
Cost/Benefit Analysis: A cost-benefit analysis is a method used to assess the pros and cons of a decision before taking action. By comparing the costs and benefits involved, one can determine if the benefits outweigh the costs or vice versa. This analysis helps in making informed choices based on maximizing net benefits.
Marginal Analysis: Economists suggest evaluating each activity at the margin by considering the additional benefit versus the additional cost of another unit of the activity. This approach aids in decision-making by weighing the marginal costs against the marginal benefits.
Decision Making: Cost analysis is essential for addressing key questions in decision-making processes, such as assessing if revenues will cover costs, evaluating economies of scale, or budgeting for new initiatives or resources.
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