Final answer:
Marginal cost analysis is the examination of the additional cost associated with producing one more unit of output, rather than average cost. The marginal cost is found by dividing the change in total cost by the change in quantity produced. It plays a critical role in cost/benefit analyses for making economic decisions.
Step-by-step explanation:
The process that deals with the additional cost associated with one more unit of production or decision-making, rather than the average cost, is referred to as marginal cost analysis. Marginal cost is calculated by the change in total cost when the quantity produced is increased by one unit. For example, if increasing the production from 40 to 60 units raises total costs from $320 to $400, the marginal cost would be the change in cost ($80) divided by the change in quantity (20 units), resulting in a marginal cost of $4 per unit.
In contrast, average total cost and average variable cost provide insights into the costs of producing a certain quantity of output. The marginal cost curve typically slopes upward due to the principle of diminishing marginal returns, which suggests that each additional unit costs more to produce. A cost/benefit analysis can incorporate marginal costs and benefits to help businesses and individuals make informed decisions by comparing what they will sacrifice against what they will gain.