Marginal Analysis Essay
Managerial Economics
Managerial Economics is a branch of economics. With the help of this branch, we can apply Economics in decision making. Managerial Economics bridges the gap between economic principles/ theory and managerial practice. To take a specific decision, this branch applies micro economic analysis. We can apply the principles of Economics in taking decisions related to some problems like scale of operation, quantum of resources to be employed, marketing etc. Because of the scarcity of the resources it is not possible to have whatever we want. To get the better value from limited resources it is essential to evaluate the difference between the total cost and the total benefits of any activity. To choose the better option one of the tools provided by the managerial economics is marginal analysis. By weighing the marginal benefits against the marginal costs one can take the best decision.
Marginal Costs- Marginal cost is the change in total cost when one more unit is produced. Marginal cost occurs when an activity increases by one unit. When the firm increases its production the total cost always increases even though the marginal costs may not rise. Rise in marginal costs is shown in the below chart. Following table shows the total cost and the marginal cost by making pizza:
|Quantity |Total Cost |Marginal Cost |
|0 |0 |-- |
|1 |5 |5 |
|2 |10 |5 |
|3 |17 |7 |
|4 |25 |8 |
|5 |34 |9 |
|6 |44 |10 |
|7 |58 |14 |
|8 |73 |15 |
|9 |90 |17 |
|10 |110 |20 |
[pic]
Managerial Economics is a branch of economics. With the help of this branch, we can apply Economics in decision making. Managerial Economics bridges the gap between economic principles/ theory and managerial practice. To take a specific decision, this branch applies micro economic analysis. We can apply the principles of Economics in taking decisions related to some problems like scale of operation, quantum of resources to be employed, marketing etc. Because of the scarcity of the resources it is not possible to have whatever we want. To get the better value from limited resources it is essential to evaluate the difference between the total cost and the total benefits of any activity. To choose the better option one of the tools provided by the managerial economics is marginal analysis. By weighing the marginal benefits against the marginal costs one can take the best decision.
Marginal Costs- Marginal cost is the change in total cost when one more unit is produced. Marginal cost occurs when an activity increases by one unit. When the firm increases its production the total cost always increases even though the marginal costs may not rise. Rise in marginal costs is shown in the below chart. Following table shows the total cost and the marginal cost by making pizza:
|Quantity |Total Cost |Marginal Cost |
|0 |0 |-- |
|1 |5 |5 |
|2 |10 |5 |
|3 |17 |7 |
|4 |25 |8 |
|5 |34 |9 |
|6 |44 |10 |
|7 |58 |14 |
|8 |73 |15 |
|9 |90 |17 |
|10 |110 |20 |
[pic]
References: 1. Wessels, W.J. Economics. Barron’s Educational Series. 2. Baumol, W.J. Economic Theory and Operations Analysis. Prentice Hall. 3. MARGINAL ANALYSIS. Retrieved on October4, 2005 from: http://sorrel.humboldt.edu/~economic/econ104/marginal/ 4. Decision Making Using Marginal Analysis. Retrieved on October4, 2005 from: http://people.eku.edu/watkinst/Economics%20120/Decision-making.doc