Preview

Marginal Analysis Essay

Good Essays
Open Document
Open Document
582 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
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]



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

You May Also Find These Documents Helpful

  • Good Essays

    Egt1 Task 309.1.1-05 06

    • 864 Words
    • 4 Pages

    B: Marginal cost is the variation in the total cost of production as a result of the production of one more or one less unit. Marginal cost is important in figuring out whether or not to vary the production rate. Typically, marginal cost decreases as the output increases due to factors such as the cost of bulk rate materials, the efficient use of the existing equipment and labor specializations of the employees. A sale at a price higher than the average marginal cost will result in the company making more profit even though the price doesn’t cover the average total unit cost. Marginal cost can be seen as the lowest amount at which a sale can be made without subtracting from the profits of a company. Marginal Cost = Total Cost divided by Quantity or (Marginal Cost)…

    • 864 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Egt Task 1

    • 577 Words
    • 3 Pages

    Marginal cost is the added cost for a company to make one or more units of production. Total cost (TC) is the combination of all variable and fixed cost expenses at various levels of production. The total fixed costs are steady costs that are not dependent on the level of output and remain the same no matter how much product is produced verses that variable total costs increase or decrease depending on the number of items produced in a particular time period. To calculate marginal cost, you would need to divide the total cost by the total output. “Marginal costs are costs the firm can control directly and immediately. Specifically, MC designates all the cost incurred in producing the last unit of output. Thus, it also designates the cost that can be “saved” by not producing that…

    • 577 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Week 1 Discussions

    • 764 Words
    • 4 Pages

    Managers use managerial economics to make business decisions regarding their customers, competitors, suppliers, and internal functions of the company. All of these have a big impact on the company’s profits and using managerial economics helps management to solve the company’s problems. Managerial economics deals with the prices/funding of goods and services and allocations of resources. It is known to be very helpful for management in price, production, and risk analyses, budgeting, and determination of demand. Management needs to make sure that the prices they have decided for the company’s goods and services are at the right level and angle for the market to make a noticeable stance amongst their competitors. If the pricing isn’t where it should be for the appropriate market and the right target(s), then the risk to the company needs to be analyzed, while focusing on how much (if any) of a loss the company is taking and working on budgeting appropriately. All of this helps management to determine the type of demand for their…

    • 764 Words
    • 4 Pages
    Satisfactory Essays
  • Good Essays

    Marginal analysis in the health care industry for example would be if you were spending $1000 for 5 units of health service, sold in $200 increments, marginal analysis would work like this, if you were to buy another $200 you would get 1/2 units, if you bought another $200 you would gain 1/4more ,another 1/8 . So as you can see you could get to a point were buying more units would work negatively because you would no longer be gaining anything (Cliff 's Notes, 2013).…

    • 767 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    B. Marginal cost is the overall change in a firms total cost of production resulting from a change in production by one unit.…

    • 304 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    - “Marginal Cost” is aggregation of variable costs whose amount varies pertaining to production quantity. The lists of marginal cost are as follows.…

    • 452 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    |*4. Installment sales. |20, 21, 23, 24, 25,|12, 13, 14 |19, 20, 21, 22, 23,|1, 8, 9, 10, 11, |1, 2, 3 |…

    • 25763 Words
    • 104 Pages
    Good Essays
  • Powerful Essays

    Managerial economics provides a set of tools, techniques, methodologies, guidance and insights that can help in making better and value-adding decisions in business and for analyzing decision problems and developing criteria for choosing the best possible solution to problems.…

    • 2879 Words
    • 12 Pages
    Powerful Essays
  • Good Essays

    Vikcy

    • 753 Words
    • 4 Pages

    ALL PRICES GIVEN HERE UNDER ARE FOR NATURAL COLOR LIKE BLACK OR BROWN. IF ANY OTHER COLOR HAIR IS REQUIRED AS PER COLOR CHART PRICES WILL CHANGE AND WE CAN QUOTE PRICES.…

    • 753 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Pure Water Graph

    • 1096 Words
    • 5 Pages

    Make two graphs of your data. On one graph plot the data from the pure water. On the other graph plot the data from the salt solution. On both plot temperature on the y-axis and time on the x-axis.…

    • 1096 Words
    • 5 Pages
    Good Essays
  • Good Essays

    A researcher would like to find out whether a man's nickname affects his cholesterol reading (though it is not clear why she believes it should). She records the cholesterol readings of 23 men nicknamed Sam, 24 men nicknamed Lou and 19 men nicknamed Mac; her data appears in the table to the right. She wants to know whether the differences in the average readings are significant; i.e., whether the average reading of all men nicknamed Sam is different from the average reading of all Lous or whether these averages differ from the average reading of all Macs.…

    • 799 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    EGT1 Task1

    • 369 Words
    • 2 Pages

    If a profit maximizing firms’ marginal revenue is greater than marginal cost, the firm will keep adding additional units to production as long as marginal cost is greater than or equal to marginal revenue. If a profit maximizing firm’s marginal…

    • 369 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Keep this chart in a place you look at every day so that you can track your savings progress…

    • 257 Words
    • 10 Pages
    Satisfactory Essays
  • Good Essays

    Egt Task a

    • 666 Words
    • 3 Pages

    Another area a business owner should be proficient in is marginal cost and how it relates to total cost. Marginal cost is the increase in total cost, which is variable and fixed costs combined, as one more unit of output is produced (McConnell et al., 2012). They are related because in order to know if marginal costs are higher or lower as an additional unit is produced you must first know the total cost to produce that item. For example, the fixed cost of producing one glass of lemonade is 3.00 and the variable is .30 this make the total cost of production 3.30. But if you produce two glasses the variable cost changes to .50 making the total cost to fix the additional glass 3.80. To find the marginal cost or to find out how much more it cost to produce that second unit of lemonade one must divide the total cost by the change in…

    • 666 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    EGC1 Study Guide

    • 9768 Words
    • 37 Pages

    Marginal cost is the extra, or additional, cost of producing one more unit of output. It is the amount by which total cost and total variable cost change…

    • 9768 Words
    • 37 Pages
    Powerful Essays

Related Topics