marginal analysis comparing benefits and costs. marginal – means “extra, additional, one...
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![Page 1: Marginal Analysis Comparing benefits and costs. Marginal – means “extra, additional, one more” Marginal Cost (MC) – What does it cost to go to the](https://reader036.vdocuments.mx/reader036/viewer/2022062321/56649dd45503460f94acbb04/html5/thumbnails/1.jpg)
Marginal Analysis Comparing benefits and costs. Marginal – means “extra,
additional, one more” Marginal Cost (MC) – What does it
cost to go to the next level or to get one more item?
Marginal Benefit (MB) – What pleasure or “utility” do you get out of the next level or item?
Incentive◦Why do we act?◦We do it when MB is greater than or
equal to MC.
The Economic Way of Thinking
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Hours Econ Score Math Score
0 0 0
1 26 24
2 48 44
3 61 62
4 73 75
5 83 84
6 91 91
7 97 96
8 100 100
Marginal Analysis Example
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PRODUCTION POSSIBILITIES
Assumes...
•Full Employment•Full Production•Fixed Resources•Fixed Technology•Two Goods
for example...
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PRODUCTION POSSIBILITIESAssumes...
Full Employmentand ProductiveEfficiency
Fixed ResourcesFixed TechnologyTwo Goods
for example...
PIZZA
A Consumer Good
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Two Goods
Fixed ResourcesFixed Technology
Assumes...
Full Employmentand ProductiveEfficiency
PRODUCTION POSSIBILITIES
for example...
Robots
A Capital Good
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Using all of our resources, to get some pizza, we must giveup some robots!
for example...
What if we could only produce ...
10,000 Robotsor
400,000 Pizzas
PRODUCTION POSSIBILITIES
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PIZZA 0 1 2 34(in hundred thousands)ROBOTS 10 9 7 40(in thousands)
in table form
PRODUCTION POSSIBILITIES
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PIZZA 0 1 2 34(in hundred thousands)ROBOTS 10 9 7 40(in thousands)
in table form
graphical formR
obots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
![Page 9: Marginal Analysis Comparing benefits and costs. Marginal – means “extra, additional, one more” Marginal Cost (MC) – What does it cost to go to the](https://reader036.vdocuments.mx/reader036/viewer/2022062321/56649dd45503460f94acbb04/html5/thumbnails/9.jpg)
PIZZA 0 1 2 34(in hundred thousands)ROBOTS 10 9 7 40(in thousands)
in table form
graphical formR
obots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
![Page 10: Marginal Analysis Comparing benefits and costs. Marginal – means “extra, additional, one more” Marginal Cost (MC) – What does it cost to go to the](https://reader036.vdocuments.mx/reader036/viewer/2022062321/56649dd45503460f94acbb04/html5/thumbnails/10.jpg)
PIZZA 0 1 2 34(in hundred thousands)ROBOTS 10 9 7 40(in thousands)
in table form
graphical formR
obots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
![Page 11: Marginal Analysis Comparing benefits and costs. Marginal – means “extra, additional, one more” Marginal Cost (MC) – What does it cost to go to the](https://reader036.vdocuments.mx/reader036/viewer/2022062321/56649dd45503460f94acbb04/html5/thumbnails/11.jpg)
PIZZA 0 1 2 34(in hundred thousands)ROBOTS 10 9 7 40(in thousands)
in table form
graphical formR
obots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
![Page 12: Marginal Analysis Comparing benefits and costs. Marginal – means “extra, additional, one more” Marginal Cost (MC) – What does it cost to go to the](https://reader036.vdocuments.mx/reader036/viewer/2022062321/56649dd45503460f94acbb04/html5/thumbnails/12.jpg)
PIZZA 0 1 2 34(in hundred thousands)ROBOTS 10 9 7 40(in thousands)
in table form
graphical formR
obots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
![Page 13: Marginal Analysis Comparing benefits and costs. Marginal – means “extra, additional, one more” Marginal Cost (MC) – What does it cost to go to the](https://reader036.vdocuments.mx/reader036/viewer/2022062321/56649dd45503460f94acbb04/html5/thumbnails/13.jpg)
PIZZA 0 1 2 34(in hundred thousands)ROBOTS 10 9 7 40(in thousands)
in table form
graphical formR
obots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
![Page 14: Marginal Analysis Comparing benefits and costs. Marginal – means “extra, additional, one more” Marginal Cost (MC) – What does it cost to go to the](https://reader036.vdocuments.mx/reader036/viewer/2022062321/56649dd45503460f94acbb04/html5/thumbnails/14.jpg)
Q
Q
Rob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
A B
C
D
E
W
Attainablebut
Inefficient
Unattainable
Attainable& Efficient
PRODUCTION POSSIBILITIES
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An economy must sacrifice some of product X to obtain more of product Y.
PRODUCTION POSSIBILITIES
Limited Resources meansa limited output...
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Economic resources are not completely adaptable to other uses
To make more of X it costs more and more of Y
This makes the PPC:◦ Bowed out from the origin◦ Concave
Law of IncreasingOpportunity Cost
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Q
Q
Robots
(thousa
nds)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
U
Unemployment &Underemployment Shown by Point U
More of either orboth is possible
PRODUCTION POSSIBILITIES
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Q
Q
Rob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
U
Unemployment &Underemployment Shown by Point U
More of either orboth is possible
PRODUCTION POSSIBILITIES
Notes...Economic Growth1. Increase in
resource supplies
2. Better resource quality
3. Technological advances
4. Capital Goods
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Economic Growth
Q
Q
Rob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
A’
B’
C’
D’
E’
PRODUCTION POSSIBILITIES