Average cost: determines the accounting profit maximisation and minimal point where the firm can remain profitable.

Marginal cost: determines economic profit maximisation and minimal 'shut-down' point where the firm should still operate, even if at an accounting loss.

Note: Average cost (AC) and marginal cost (MC) are related. The rate of change of AC is always positive when MC is positive.

Rational choice

Economic theory makes much use of marginal concepts. Marginal cost, marginal revenue, marginal rate of substitution, marginal utility, marginal product, and marginal propensity to consume are a few examples. Marginal means on the margin and refers to what happens with a small change from the present position. It is the concept of economic choices to make small changes rather than large-scale adjustments.

Marginal analysis is the key principle of profit-maximization in firms and utility maximization among consumers.

See: Alfred Marshall.

Marginal analysis is used primarily in the technological field to determine what technologies should be created and what would be a fair price for them. It measures data and numbers for technology developers.