In economics, the phrase "optimal decisions are made at the margin" means that individuals, firms, or policymakers make choices by comparing the additional (marginal) benefits and additional (marginal) costs of one more unit of an activity or good. Decisions are optimal when the marginal benefit of an action equals its marginal cost, maximizing net benefit or utility. This concept, known as the marginal principle, involves focusing on small incremental changes rather than total or average values. For example, a firm deciding whether to produce one more unit of a product will weigh the extra revenue gained (marginal benefit) against the extra cost incurred (marginal cost). If the marginal benefit exceeds the marginal cost, it is rational to proceed; if not, the firm should stop increasing production
. Similarly, consumers decide how much of a good to buy by comparing the additional satisfaction (marginal utility) from consuming one more unit to the price they must pay. Optimal consumption occurs when marginal utility equals price
. This approach also applies to public policy and resource allocation, where decisions are based on balancing marginal social benefits against marginal social costs to achieve efficient outcomes
. In summary, making decisions "at the margin" means continuously evaluating the incremental costs and benefits of small changes and choosing the level of activity where these are equal, thus ensuring resources are used most efficiently and benefits are maximized
