Final answer:
Differential analysis is a business tool for comparing alternatives which may result in various profit outcomes. It involves experimenting with production changes to optimize profits, using cost/benefit analysis and indifference curves for informed decision-making.
Step-by-step explanation:
Differential analysis is a tool utilized in decision-making processes within businesses. It involves comparing the costs and benefits of alternative courses of action to determine how each will affect the firm's profits. Differential analysis does not always result in higher profits, lower profits, no change in profits, or unpredictable profits. The outcome is highly dependent on the specific circumstances of each decision and cannot be predetermined without conducting the analysis.
When performing differential analysis, firms experiment by making adjustments to their production levels and observing the impact on marginal revenue and marginal cost. This helps them to make informed decisions aimed at maximizing profits. Using tools such as cost/benefit analysis and indifference curves, businesses can better understand how changes in operations or strategy may affect their bottom line.