The traditional profit maximization objective uses the marginal analysis – this profit maximization model of firm behaviour is rich in decision making implications. The marginal/incremental decision rules that are derived from profit max provide very useful guidelines for resource allocation decision. If incremental cost is defined as the change in total cost resulting from a decision and if incremental revenue is defined as the change in total revenue resulting from a decision, then any business decision is profitable of one of these results occur:

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  1. It increases incremental revenue more than incremental costs.
  2. It decreases some incremental costs more than it increases others (assuming revenues remain constant)
  3. It increases some incremental revenues more than it decreases others (assuming costs remain constant)
  4. It reduces incremental costs more than incremental revenue.
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