What analysis focuses on the changes in total revenue and cost from selling one more unit of a product?

Marginal analysis is a key concept in economics and business that examines the additional benefits and costs associated with producing or selling one more unit of a product. This analysis is crucial for firms looking to optimize their production and pricing strategies. By focusing on the incremental changes, businesses can determine whether the revenue generated from the sale of an additional unit exceeds the costs incurred to produce it. If the additional revenue (marginal revenue) is greater than the additional cost (marginal cost), it makes financial sense to increase production. Conversely, if marginal costs exceed marginal revenue, the firm would likely benefit from reducing output.

In contrast, cost-plus pricing involves setting prices based on production costs plus a markup, which does not consider the marginal changes in revenue or cost associated with specific unit sales. Average-cost pricing averages the total costs over all units produced, failing to address the variable impact of selling one more unit. Demand forecasting focuses on estimating future consumer demand, which does not directly relate to the analysis of changes in revenue and costs from selling additional units. Hence, marginal analysis stands out as the most relevant method for discerning the financial implications of expanding production on a unit-by-unit basis.