ABSTRACT
There is only one microeconomic principle, and that may be called the principle of marginalism. A major part of microeconomic analysis is devoted merely to applications of the principle. The principle is often stated differently in different applications. If dealing with consumer expenditure decisions, the formulation may be as follows: To maximize utility, allocate expenditures so as to equalize the marginal utilities of the last dollar spent in each available line of expenditure. Or to make an efficient allocation of a productive resource, allocate the resource so that its marginal productivity in all possible uses is the same. Or to maximize profits, carry production to the point where marginal revenues and marginal costs are equal. In a more general formulation it would be: Continue any activity to the point where marginal gain and marginal cost are equal if one is trying to maximize net gain. Of course, it can be argued that the last unit of activity that equalizes the two adds nothing to net gain, so the principle should be formulated in terms of inequalities, not equalities, and continue only so long as marginal gain exceeds marginal cost; and the principle is sometimes formulated in such manner. Marginal costs are merely additions to total cost, and marginal gains are additions to total gains, from carrying something one unit farther.
