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The Incremental Concept :
The incremental concept or the principle of incremental reasoning is one of the most important concepts in business economics which is widely used in the process of decision making. The incremental concept is a decision-making tool that focuses on the changes in costs and revenues resulting from a specific decision. It helps managers determine if a course of action will be profitable by comparing the incremental (additional) costs and benefits of that action against the next best alternative.

(1) Incremental Cost:
Incremental cost may be defined as the change in total cost as a result of the change in the level of output, investment, price etc. Thus, incremental costs are the added costs of a change in the level or nature of activity. They may refer to any kind of change say like, adding a new product, changing distribution channels, adding new machinery etc. Incremental cost, thus, may be defined as the change in total cost consequent upon a decision taken by the firm.

IC = C2 - C1
Where,
IC= incremental costs
C2 = new total costs
C1 = old total costs

(2) Incremental Revenue :
Incremental revenue is the change in total revenue resulting from a decision regarding change in the level of output, prices etc. The formula for incremental revenue is as follows:
IR = R2 - R1
Where, IR = incremental revenue
R2 = new total revenue
R1 = old total revenue

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