{"content":{"sharePage":{"page":0,"digests":[{"id":"47802582","dateCreated":"1323316877","smartDate":"Dec 7, 2011","userCreated":{"username":"ronhbell","url":"https:\/\/www.wikispaces.com\/user\/view\/ronhbell","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"},"monitored":false,"locked":false,"links":{"self":"https:\/\/mbaeconfall2011.wikispaces.com\/share\/view\/47802582"},"dateDigested":1532762582,"startDate":null,"sharedType":"discussion","title":"Marginal Analysis","description":"Marginal analysis is the field of economics that examines the net benefit or cost of consuming or producing one additional unit of a good.
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\nMarginal analysis is a part of the school of economic thought known as Marginalism which was popularized by Jevon, Menger and Walras (Winch)
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\nThe major laws of economics that apply in marginal analysis are the laws of diminishing marginal utility and the law of diminishing marginal productivity.
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\nThe law of diminishing marginal productivity states that the marginal benefit that is gained from adding an additional variable in the production process (labor, land, capital) eventually declines after a while. (Foldvary)
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\nThe law of diminishing marginal utility states that the marginal benefit gained from consumption of a good eventually declines after a while. (Foldvary)
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\nMarginal analysis is applicable to most concepts of managerial and classical economics, but it is of particular importance when dealing with labor economics, production decisions, profit maximization and managerial decision-making. Outside of the business world, marginal analysis is particularly useful in evaluating politics, sports management and individual personal consumption choices.
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\nIn labor economics, economists use the idea of marginal productivity of labor to explain income distribution and wage rates. Using marginal analysis, many economists have theorized that employee wages (the marginal cost incurred by the company paying him\/her) are equal to an employee\u2019s marginal product of labor. This has been a controversial, but thought provoking topic.
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\nIn profit maximization, marginal analysis is used to determine the profit maximizing quantity for a company. When a company is in a position to choose its price (which is called a price-searcher) in a marketplace, it will produce at a quantity where marginal revenue is equal to marginal cost.
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\nProfit maximization is not the only aspect of decision-making. Managerial economics includes budget constraints, supply and demand, game theory and evaluating production quantities in abnormal market conditions. Marginal analysis has its place in all of these areas. The \u201claw of economizing\u201d states that individuals (firms and consumers) will engage in actions that maximize their gains and minimize their losses.
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\nExample 1
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\nBilly has a lemonade stand, which sells two forms of lemonade \u2013 pink and traditional lemonade. His cost of producing traditional lemonade is $2. He uses pink food coloring to make the pink lemonade, costing him 25 cents per glass.
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\nCustomers like the pink color, and they are willing to pay 20 cents more than they would for traditional lemonade.
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\nThe marginal revenue gained from making the lemonade pink is 20 cents.
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\nThe marginal cost is 25 cents.
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\nQuestion 1:
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\nWhat should Billy do?
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\nA. Stop production of pink lemonade
\nB. Continue production of pink lemonade
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\n (Answer = A)
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\nQuestion 2:
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\nSuppose the pink lemonade brought a marginal revenue of 30 cents. What should Billy do?
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\nA. Stop production
\nB. Continue production
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\nAnswer = B
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\nQuestion 3:
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\nThe additional benefit gained from the pink lemonade is known as marginal benefit. T \/ F
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\nAnswer: T
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\nExample 2:
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\nBig Joe Fazoli is the coach of the local football team, the \u201cFighting Pizzas\u201d. Last year they went 0-13 in their season and they are looking to recruit some new talent. He scouted the local football teams and found that local running-back Fred Meatball is deciding to stay close to home.
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\nJoe Fazoli is a hard-nosed negotiator and realizes that he wants to ensure that he gets a solid marginal product of labor out of Meatball. He decides to pay him a rate of $10 per every yard. Secretly, Fazoli values a yard at $12.
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\nQuestion 4:
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\nWhat would Meatball\u2019s rate of $10\/yard be in marginal economic terms (from the Coach\u2019s perspective)?
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\nA. Marginal Product of Labor
\nB. Marginal Diminishing Return
\nC. Marginal Economic Impact
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\nAnswer: A
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\nQuestion 5:
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\nMeatball\u2019s impact on the team eventually declines, despite his talent and performance. Thiis is an example of what law.
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\nAnswer: Law of diminishing returns","replyPages":[{"page":0,"digests":[{"id":"47802926","body":"Sources:
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\nFederal Reserve Bank of San Francisco. "Great Scholars" Great Economists. http:\/\/www.frbsf.org\/publications\/education\/greateconomists\/grtschls.html<\/a>
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\nFoldvary, Fred. "The Natural Laws of Economics" http:\/\/www.progress.org\/2004\/fold379.htm<\/a>
\nHagendorff, Klaus. "The Labor Theory of Value: A Marginal Analysis" http:\/\/ideas.repec.org\/p\/pra\/mprapa\/10202.html<\/a>
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\nKrugman, Wells (2006) Economics. Worth Publishers: New York, New York.
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\nWinch, Donald. "Marginal Analysis and The Boundaries of Economic Science" http:\/\/hope.dukejournals.org\/content\/4\/2\/325.full.pdf<\/a>","dateCreated":"1323317395","smartDate":"Dec 7, 2011","userCreated":{"username":"ronhbell","url":"https:\/\/www.wikispaces.com\/user\/view\/ronhbell","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"}},{"id":"47995040","body":"SUMMARY: Marginal Analysis studies the effect of consuming or producing; more or less. MArginal analysis is applied to business -- in particlar in regards to productivity, labor, or profit. Marginal anaylsis is useful outside of business in politics, sports, and individual consumption. Using marginal analysis allows decision makers to understand how to maximize outputs.","dateCreated":"1323643410","smartDate":"Dec 11, 2011","userCreated":{"username":"bcnelson","url":"https:\/\/www.wikispaces.com\/user\/view\/bcnelson","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"}}],"more":0}]},{"id":"44890548","dateCreated":"1319484849","smartDate":"Oct 24, 2011","userCreated":{"username":"ctsimpson","url":"https:\/\/www.wikispaces.com\/user\/view\/ctsimpson","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"},"monitored":false,"locked":false,"links":{"self":"https:\/\/mbaeconfall2011.wikispaces.com\/share\/view\/44890548"},"dateDigested":1532762582,"startDate":null,"sharedType":"discussion","title":"Cartels and Collusion","description":""The uncertainty that exists in an oligopoly can lead to collusive behaviour by firms. When this happens the existing businesses decide to engage in price fixing agreements or cartels. The aim of this is to maximize joint profits and act as if the market was a pure monopoly."
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\nhttp:\/\/tutor2u.net\/economics\/content\/topics\/monopoly\/cartels.htm<\/a>","replyPages":[{"page":0,"digests":[],"more":0}]},{"id":"44890248","dateCreated":"1319484750","smartDate":"Oct 24, 2011","userCreated":{"username":"ctsimpson","url":"https:\/\/www.wikispaces.com\/user\/view\/ctsimpson","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"},"monitored":false,"locked":false,"links":{"self":"https:\/\/mbaeconfall2011.wikispaces.com\/share\/view\/44890248"},"dateDigested":1532762582,"startDate":null,"sharedType":"discussion","title":"Recent FTC Fine for Collusion ","description":"http:\/\/www.google.com\/hostednews\/afp\/article\/ALeqM5jULF01bxTfSe8biw2M67TDhSCkMQ?docId=CNG.f2d52794fdaa772db549405357a24dd8.361<\/a>","replyPages":[{"page":0,"digests":[],"more":0}]}],"more":false},"comments":[]},"http":{"code":200,"status":"OK"},"redirectUrl":null,"javascript":null,"notices":{"warning":[],"error":[],"info":[],"success":[]}}