Question

Marginal analysis and decision-making:

Concept: The Fundamental Assumption of Economics

All social phenomena emerge from the actions and interactions of individuals who are choosing in response to expected marginal benefits and expected marginal costs to themselves.

• Definition: Marginal is additional or incremental (amount of increase) or decremental (amount of decrease).
• Should I do (choose) activity x?
• MC(x) = the additional costs of doing x
• MB(x) = the additional benefits of doing x

Rule:

• If Expected MB(x) > Expected MC(x), do x; otherwise don't.

Application:

Would an employer ever hire anyone if the expected additional cost of his or her employment were greater than the expected marginal/additional benefit? Of course not, to do so would be irrational.

Assumptions:

In economics, we assume rationality. No one would intentionally harm themselves.

Do businesses have the ability to measure costs? Marginal costs?

How would you use this concept to determine when to get married?

Answer 1

Sold HOT Marginal analysis and decision - moking Concept: the fundamental assumption of economics. Ability to measure costs not only include marginal cost but also fixed cost involued in businesses, which form the total cost function which is faced by businesses. As far as businesses ability to measure costs is concerned, of course they have ability to measure costs or marginal costs As explained above, each and every busin esses know the cost function of their production operations. By using that function businesses can easily calculate their marginal cost of each and every unit produced the total cost function is look like this: suppose Total Cost = 10tQQ in this case marginal cost MC is 2 Therefore, its become very easy to measure costs or Marginal costs. Hence way we can say that, of course business have the ability to measure costs or Marginal costs.