Marginal AnalysisMarginal analysis a key tool in helping businesses and individuals allocatescarce resources to maximize production. Marginal analysis measures thecosts and benefitsof the next unit of a good or service. Consider this example from personal life:You usually go on vacation forsevendaysand are considering going for aneighth day. To decide, youmeasure the benefits of the additional day against its costs. Benefits would include increased relaxationand the chance to do new activities or see new sights. Costs would include additional expensesand additional time away from work and/or friends. In business, marginalanalysis is used tocomparethe additional benefit of producing one moreunit or serviceto the costs of that same action. Companies have —money, labor, time—so they seek to determine how best to use those resources. For example, a video game producer willmeasure the costs of producing one moregame against the projected revenue from thesaleof that additional game. Usingmarginal analysis, the company would assess increasingproduction of the video game until marginal benefit (revenue) equals marginal costs (MB= MC).The point where marginal benefits equal marginal costs is the point of maximum revenue or profit. After that production point, it costs the company more to produce additionalunits than it is worth. Supply and demand are the key factors that determine the point of maximum profit. If the company produces more video games than people buy, there is a surplus and revenue slows. If they produce too few, demand might be satisfied by competing products. Analyzing supply and demand curves allows a business to determine the optimal level of production. InstructionsRead the following scenario. Then, write an essay explaining whether the company should increase or decrease production, providing reasons for your decision. ©PBS LearningMedia, 2015 All rights reserved. Company A makescomputer servers. They produce50 serversat a total cost of $50,000and sellthem for $1,200 each, for total revenue of $60,000. If the company produces a 51stserver, its total revenue will be $61,200 and its total cost will be $51,500. Should the company produce that 51stserved? Why or why not?