Compare additional benefit with additional cost.
Marginal means additional. To decide whether to take one more feasible step, compare what that step adds to benefit with what it adds to cost. Include the relevant forgone alternative, not only a cash payment. A rising total benefit does not establish that another step is worthwhile. In a simple sequence where extra benefits fall and extra costs stay the same or rise, continue while an extra step increases net benefit. Discrete choices, such as whole sessions, need not produce exact equality between marginal benefit and marginal cost. If they are equal, the step adds no net benefit; there may be a tie rather than a uniquely best quantity.
- Marginal means additional
- Marginal benefit is the benefit of one more action; marginal cost is what that extra action costs, including its relevant opportunity cost.
- Net benefit
- Net benefit is benefit minus cost. If an extra session brings a benefit of 9 but costs 11 in comparable units, it reduces net benefit by 2 even though its benefit is positive.
- Discrete choices
- Discrete means choosing whole steps, such as zero, one or two complete sessions. Compare the net benefits of the possible totals; the best choice need not have exactly equal marginal benefit and marginal cost.
Using the marginal rule carefully
Total and marginal
Total benefit sums benefits from all chosen actions. Marginal benefit is the difference made by one extra action. A positive total does not justify every possible next step.
Discrete increments
If later blocks require earlier ones, compare cumulative net benefits (the running totals) across feasible stopping points. When marginal benefits fall and marginal costs stay the same or rise, stop before an increment with negative net benefit. For a more complex or non-sequential choice, compare the feasible packages rather than applying a stopping rule blindly.
Equality and ties
When an extra action has equal benefit and cost, it adds zero net benefit. Including or excluding that step can tie unless another consideration breaks the tie. Equality is not a requirement that every discrete optimum must satisfy.
Relevant costs
Compare costs changed by the decision, including relevant opportunity costs. A past payment that cannot be recovered or affected by either option should not by itself justify an otherwise harmful extra action.
| Additional block | Extra benefit | Extra cost | Extra net benefit | Cumulative net benefit |
|---|---|---|---|---|
| 1 | 18 | 6 | 12 | 12 |
| 2 | 13 | 8 | 5 | 17 |
| 3 | 9 | 10 | -1 | 16 |
| 4 | 4 | 12 | -8 | 8 |
Worked example: How many practice blocks?
A learner can take up to four consecutive practice blocks. To illustrate their own comparison, extra benefits are valued at 18,13,9,4 units and extra opportunity costs at 6,8,10,12 units. The units are comparable within this comparison, not measured exam marks or a way to compare different people's satisfaction. Later blocks require earlier ones.
- Block 1 adds 18 - 6 = 12 units of net benefit. Block 2 adds 13 - 8 = 5, taking cumulative net benefit, the running total after both blocks, to 17.
- Block 3 still adds a positive benefit of 9, but costs 10. It reduces cumulative net benefit to 16.
- Block 4 reduces net benefit by another 8, leaving 8 in total. Among zero to four consecutive blocks, two give the highest net benefit: 17.
- No row has equal marginal benefit and cost. For this discrete choice, insisting on equality would miss the best feasible option.
Watch out for this
If marginal benefit is below marginal cost, the activity provides no benefit.
It may still provide a positive benefit. The point is that its additional cost is larger, so its additional net benefit is negative.
Check your understanding
An optional extra session provides an additional benefit valued at 9 and an additional cost of 11 in comparable units. What does this establish?
- The extra session has no benefit.
- Take it because total benefit will increase.
- It reduces net benefit by 2 under the stated comparison.