Question

Please read the news below and apply the marginal benefit and marginal cost analysis in your comments (e.g. the offenders breaking off the crabs' legs). Distinguish the internal and external costs as well. Please post your comments by Sunday January 19th.

Answer 1

Before analyzing, we first need to know what is MC and marginal benefit.

Marginal Benefit is the maximum amount that a consumer pay for an additional good/service, on the other hand, Marginal Cost is the change in cost that comes from making more of something.

In the above case, where crabs are very demanded by the consumers and it costs very high. As the couple are breaking the crabs legs, there might be less demand where people will not buy crabs without legs. The fishermen will suffer by these activities.

As there is high demand people will be willing to pay much for crabs, but not for those crabs which legs are broke.

Marginal Cost will also be negligible as people will not pay more for those defected crabs.

calculating Internal cost, the business must have set some price for selling crabs, those will also have a negligible amount as profit will not be there, and also the hidden cost, i.e., external cost will also be negligible.