Introduction & Marginal Analysis

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BEO6600 Business Economics: Tutorial/Homework Assignment #1 & 2 Coverage: Introduction & Marginal Analysis

6. *Define scarcity and opportunity cost. What role these two concepts play in the making of business decisions?

In economic situation, Scarcity means there are inadequate/ insufficient amount of supply of resources. Those resources are Human resources (labour), natural resources (land and raw materials), and manufactured resources (capital). Scarcity is where human wants are virtually unlimited whereas the resources available to satisfy what their wants. So, scarcity can be identified as the excess of human wants over what can actually be produced.

Opportunity cost is the cost we sacrifice which occur when we make a specific activity or choice measured in terms of the best alternative skipped.

By putting scarcity concept to business decision, manager actually can predict the limit of resources they want to use, since resources are limited. For example, with a population of five million and a limited land area of 710 square kilometers, Singapore faces immense challenges in its land-use planning. So, Singapore adopts a centralized planning approach while ensuring a judicious use of land so as not to compromise its ability to meet future needs (www.esri.com/news/arcnews/winter0910articles/singapore-uses.html).

With scarcity, there is usually a trade-off and these trade-off results in an opportunity cost. These concepts play a role when taking into account: • Consumer choices (Affect in the individual choices)

• Production possibilities (Limitations on what people are able to produce) • Cost of capital
• Time management
• Career choice
• Balancing decisions.
Analysis of comparative advantage in business decision- making, opportunity cost is a concept where manager uses to measure the cost they have to sacrifice from choices the company has to achieve their goals. For example, restaurant ABC has to spend extra on rental and wages for them to open in the city in comparison to opening a restaurant in a suburb. 8. *(a) what is Marginal Analysis? (b) Why Is Marginal Analysis Important in Economics? (c) What is the role of Marginal analysis?

a) Marginal analysis is the analysis of the benefits and costs of the marginal unit of a good or input. Marginal = the next unit. b) Marginal analysis is used to assist in allocating scarce resources to maximize the benefit or output produced and it gets the most value for the resources used. Marginal analysis is used to identify the benefits and costs of different alternatives by examining the incremental effect on total revenue and total costs caused by a very small (just one unit) change in output or input of each alternative. marginal analysis is important to provide decision makers in order to archives the greatest benefit c) The role of marginal analysis is to aid in decision making, where marginal analysis looks at the effects of a small change in the control variable. Any change can produce goods which become a marginal benefit or sometimes bad which can be a marginal cost.

9. *Suppose a firm's inverse demand curve is given by P = 120 - .5Q, and its cost equation is C = 420 + 60Q + Q2.

(a) Calculate Price (P), Total Revenue (TR), Marginal Revenue,(MR) Total Cost (TC), Marginal Cost (MC), Total Profit and Marginal Profit for Q =15…35.

Table 1:

|Q |P |
|174 | |
|178.5 |4.5 |
|180 |1.5 |
|178.5 |-1.5 |
|174 |-4.5 |
|166.5 |-7.5 |
|156 |-10.5 |
|142.5 |-13.5 |
|126 |-16.5 |
|106.5 |-19.5 |
|84 |-22.5 |
|58.5 |-25.5 |
|30 |-28.5 |
|-1.5 |-31.5...
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