Holding everything else constant, which option is better? Principles of Microeconomics Chapter 2.1. Marginal costs sometimes go up and sometimes go down, but to get the clearest view of your options, you should always try to make decisions based on marginal costs, rather than total costs. From a consumer’s point of view, marginal benefit is the additional satisfaction of one more item purchased. Thus marginal analysis suggests that rational maximizing behavior is to work for 10 hours. So long as MR is greater than MC, the firm will expand its volume of output (sales). For example, you might enjoy ice cream more than your friend who is allergic to dairy. Product-Line Decisions 5. Most modern firms are multi-product firms.

Consider the following example. What is the marginal cost of each scoop of ice cream? Capital Expenditure Decisions 3. The difference in cost between one week and two is \$3,600 – \$2,000, or \$1,600. Either way, marginal analysis is an important part of economic rationality and good decision-making. Marginal Analysis.

Output Expansion and Contraction Deci­sions 4. Thus, while the marginal cost of the first week’s rental is \$2,000, the marginal cost of the second week’s rental is \$1,600. Marginal Analysis: Application # 4. If a firm suffers from ca­pacity constraints it has to expand, or purchase cer­tain items from an external source.

Welcome to EconomicsDiscussion.net! From a business’ point of view, marginal benefit is the additional revenues received from selling one more item.

It’s natural for people to compare costs and benefits, but often we look at total costs and total benefits, when the best choice requires comparing how costs and benefits change from one option to another. This illustrates the key rule of marginal analysis: Marginal cost = the change in total cost from one option to another. A firm will continue to spend money on advertising so long as the marginal revenue (after advertising) exceeds marginal cost (after advertis­ing), or, marginal cost is less than marginal revenue. The difference in cost between one week and two is \$3,600 – \$2,000, or \$1,600.

If an action's benefits outweigh its costs, it should be taken. Economics, Microeconomics, Marginal Analysis, Applications. The cost comparison has to be made between the supplier’s price and the marginal cost of producing the goods on the premises. Generally speaking, marginal cost is the difference (or change) in cost of a different choice. The budget constraint framework helps to illustrate that most choices in the real world are not about getting all of one thing or all of another—we rarely decide “all burgers” or “all bus tickets.” Options usually fall somewhere on a continuum, and the choice usually involves marginal decision-making and marginal analysis. Should you rent a beach house for one week or two?