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

Scarcity is a Ever-present situation in all markets whereby either less goods are available than the demand for them, or only too little money is available to their potential buyers for making the purchase. This universal phenomenon leads to the definition of economics as the "science of allocation of scarce resources."

Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

Opportunity cost can be defined as the value of the next best alternative forgone. It can be defined as the revenue or the profit that a person/organization would have been able to earn if it had exercised the alternative decision instead of the decision that has been made.

Opportunity-cost has many practical business applications, because opportunity costs will exist as long as resource scarcity exists. The value of the next-best alternative should be considered when choosing among production possibilities, calculating the cost of capital, analyzing comparative advantages, and even choosing which product to buy or how to spend time.

2. *(a) what is Marginal Analysis? (b) Why Is Marginal Analysis Important in Economics? (c) What is the role of Marginal analysis?

Marginal Analysis is the process of considering small changes in a decision (control variable) and determining whether a given change will improve the ultimate objective this technique is widely used in business decision-making and ties together much of economic thought

The process of identifying the benefits and costs of different alternatives by adding one extra unit of any input variable (raw materials, Machines and workers etc.) but others factors should be remaining constant. This is the very useful tool for evaluating the alternative in the process of...

...Benefit / Cost and Scarcity Paper
Uploaded by 989 on Aug 1, 2005
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Marginal Benefit / Cost and Scarcity Paper
Define the concept of scarcity: Scarcity: The goods available are too few to satisfy individuals' desires. Scarcity is a central concept in economics. Resources are scarce if any individual would prefer to have more of that good or service than they already have. Most goods and services are scarce - those that are not are known as free goods. Where goods are scarce it is necessary for society to make choices as to how they are allocated and used. Economists study (among other things) how societies perform the optimal allocation of these resources. For example, we may all want to own gold jewelry. However, the amount of gold available is limited, so it is necessary to make choices as to how it is allocated. In a market economy, this is achieved by trade. Individuals trade resources between themselves to reallocate resources to where they are most wanted. In a smoothly operating market system, the rate of exchange between different resources or price will adjust so that demand is equal to supply. One of the roles of the economist is to discover the relationship between demand and supply and develop mechanisms (such as pricing, incentives, or...

...MarginalRevenue and MarginalCost
An understanding of marginalrevenue and marginalcost is economically crucial to owning and operating a successful business. Marginalrevenue is the amount of change in total revenue by selling one additional product. So if a company sells four extra unit of product and brings extra totalrevenue of 500 dollars than the marginalrevenue for this month would be 125 dollars. This is found by taking the change in total revenue, 500 dollars, and dividing it by the change in quantity, 4 units of product. This gives you the marginalrevenue which can help a company understand what each unit is worth and how much they will be making for each extra unit.
Marginalcost is how much it cost the company to produce one more product. A company calculates the marginalcost by taking the change in total cost and dividing it by the change in quantity. If it cost a company 400 dollars to produce eight units and it cost a company 425 dollars to produce nine units than the marginalcost for making product nine is 25 dollars.
Finding a profit and understanding when you are earning a...

...3.05 MarginalCost Analysis
Name:______________________________________________
Step One: Launch the data generator to get started (located in the last page of the lesson, or use the numbers given below:
Quantity
Price (in whole dollars)
Total RevenueMarginalRevenue
Total CostMarginalCost
Profit (or loss)
0
42
0
35
1
41
41
68
2
40
80
94
3
39
117
107
4
38
152
114
5
37
185
129
6
36
216
180
7
35
245
235
8
34
272
296
Step Two: Determine a product market (a specific good or service) appropriate to the prices listed. This will be the title of your graph and data table. You will be creating a graph on Step Four.
Step Three: Calculate the marginalrevenue, marginalcost, and profit for each quantity level. Fill in the data table. Use the Case Study presentation at the bottom of the lesson page in 3.05 for step by step instructions on how to calculate your figures. This case will also help you construct your Step Four.
o Total Revenue = Quantity x Price
o Total Cost = Fixed Cost + Variable Cost
o Profit or Loss = Total Revenue – Total Cost
o ―Marginal means additional
o MarginalRevenue is computed by finding the difference of the...

...the average variable cost is
a. at the same level of output as the minimum average total cost
b. at a smaller level of output than the minimum average total cost
c. at a larger level of output than the minimum average total cost
d. at the same level of output as the average fixed costs
e. same as minimum marginalcost
2. The multiplant monopolist maximises profits when
a.Marginalcost equals marginalrevenue
b. When marginalcost in each plant are equal
c. When average cost in each plant is equal
d. When marginalrevenue in each plant is zero
e. When he produces only in the low cost plant
3. If the market price is exactly equal to average cost,
a. the firm shuts down as there is no profit
b. the firm shuts down as the variable costs cannot be covered
c. Continues to operate in the short run
d. The firm shuts down as it cannot cover its fixed
e. The firm shuts down if the price is lower than average variable cost
4. Which of the following would shift a firms short run average cost upward
a. An advance in technology
b. An increase in wages
c. An increase in demand for the product
d. Reduction in excise taxes
e. Reduction in interest costs...

...output in two plants. The demand for your firm's product
is P = 78 - 15Q, where Q = Q1 + Q2. The marginalcosts associated with producing in the two plants
are MC1 = 3Q1 and MC2 = 2Q2. How much output should be produced in plant 1 in order to maximize
profits?
A. 1
B. 2
C. 3
D. 4
2.
You are the manager of a firm that produces output in two plants. The demand for your firm's product
is P = 78 - 15Q, where Q = Q1 + Q2. The marginalcosts associated with producing in the two plants are
MC1 = 3Q1 and MC2 = 2Q2. What price should be charged to maximize profits?
A. $20.5
B. $40.5
C. $60.5
D. $80.5
3.
You are the manager of a firm that produces output in two plants. The demand for your firm's product
is P = 78 - 15Q, where Q = Q1 + Q2. The marginalcosts associated with producing in the two plants are
MC1 = 3Q1 and MC2 = 2Q2. What price should be charged in order to maximize revenues?
A. $39
B. $47
C. $52
D. $56
4.
Which of the following is true under monopoly?
A. Profits are always positive.
B. P > MC.
C. P = MR.
D. All of the choices are true for monopoly.
5.
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's
cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is:
A. 4/5.
B. 10.
C. 5.
D. 45.
6.
You are the manager of a firm that sells its product in a competitive market at a price...

...use the definition of the derivative as a limit.
[pic]
Now you know what derivatives are; one important application of derivatives is on marketing, mostly on marginalrevenue and marginalcost. Marginalrevenue and Marginalcosts are derivatives.
The marginalRevenue is the derivative of the total revenue function divided by the change in quantity.
[pic] = [pic]
Similarly the marginalcost is the derivative of total cost divided by the change in quantity.
[pic]=[pic]
Usually the change in quantity isn’t a factor in most situations so most of the time it is
(MC)’ = (TR)’
Now if you’re wondering, why would you need to know this?
Well if you are running a business, these derivatives would allow you to determine, how much of a certain good you should be producing to maximize your profit.
Your profit function is the difference between your total cost and total revenue.
[pic]
Also TR= x*P(X)
For some value of X
So if you would want to maximize your profit you take its derivative:
[pic] = MR – MC
= [pic]–[pic]
Set the profit prime to = 0
0 = MR – MC
MC = MR
What does this mean? When the derivative of the cost function is equal to the derivative of the revenue...

...process costs RM 6500 to set up for one year’s use. If items cost RM 85 each to produce and other costs amount to 3.5 x2, where x is the production in hundreds, find the level of production that will minimise the cost per item over the year. What will the total cost amount to at this level of production?
7. The marketing department of Spager Ltd estimated that if the selling price of product is set at $15 per unit then the sales will be 50 units per week, while, if the selling price is set at $20 per unit, the sales will be 30 units per week. Assume that the graph of this function is linear. The production department estimates that the variable cost will be $5 per unit and that the fixed cost will be $50 per week, and special cost are estimated as $0.125x2, where x is the quantity of output. All production is sold.
(a) Show that the relationship between price (Pr) and quantity sold (x) , are given by the equation Pr = 27.5 - 0.25x.
(b) Find the revenue function, R.
(c) Find the total cost function (C).
(d) Advise the company on production and pricing policy if it wishes to maximize profits, and find the maximum profit.
8. A firm receives £135 for each unit sold. The costs consist of a fixed cost per month of £2500 and variable costs given by the...