Decision making by individuals and firms - Making how much decisions: the role of Marginal Analysis - Marginal analysis
6 important questions on Decision making by individuals and firms - Making how much decisions: the role of Marginal Analysis - Marginal analysis
What do we use to determine the marginal cost and the marginal benefit, of producing one additional unit of a good? What does this analysis consist of?
- We use the marginal analysis, to determine the marginal cost and benefit of a producing on more unit.
- the analysis consists of
- the quantity of a good produced,
- the marginal benefit from that additional unit,
- the marginal cost of that additional unit
- and finally the additional profit of producing that additional unit, it is the difference between the marginal benefit and the marginal cost of that additional unit
How do we describe the optimal quantity when looking at marginal analysis?
- The optimal quantity is the quantitiy that generates the maximum possible total profit.
- basically meaning the optimal qunatity of producing one additional unit of a good is the last positive additional profit of producing that good.
How do we determine the optimal quantity that generates the highest possible profit? Grpahically?
- The optimal quantity occurs where the marginal cost is equal to the marginal benefit.
- Graphically is the point at which the marginal benefit intersects the marginal cost.
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How do we determine the optimal quantity at which a good is produced, or the optimal quantity at which the an additional unit should stop being produces, when there is A SMALL NUMBER OF UNITS PRODUCED?
- With small quantities produced we chose the optimal quntity by
- increasing the quantity as long as the marginal benefit from one more unit is greater than the marginal cost
- but stop at where marginal benefit become smaller than marginal cost.
- so where the difference between marginal benefit and marginal cost is very close or closest to zero
- USING TABLES
How do we deremine the optimal quantity at which a good is produced, or the optimal quantity at which the an addtional unit should stop being produces
- We calculate the additional profit form the additional unit
- we sum the additonal profits to find the total profit
- the quantity with the highest additional profits is the optimal quantity
What is the general rule for a profit maximizing principle of marginal analysis?
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