Essays on Economics Topics Discussion Case Study

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The paper 'Economics Topics Discussion' is a perfect example of a Macro and Microeconomics Case Study. Marginal analysis is the criteria that are applied in the process of analyzing the benefits and costs brought about by a one-unit increment of a given activity. In other words, marginal analysis is used to identify the incremental effect on the total revenue and total cost as a result of one unit increment in the level of output or input. This concept plays a very important role in decision making in companies as well as at an individual level.

For example, most companies employ the concept of marginal analysis as a decision-making tool to help them in maximizing their profits and minimizing their costs of production. To make optimization decisions, managers are faced with the problem of trying to minimize or maximize some objective function, the concept of marginal analysis helps them in solving these problems. To solve the maximization problem, managers solve the problems by applying the simple rule that states that, in order to maximize net benefits, it is necessary to decrease the level of activity up to the point where the marginal benefit achieved fro the activity equals to the marginal cost incurred by performing the activity.

According to the principle of marginal analysis, as long as the marginal benefit of producing one more unit of a product is greater than the marginal cost incurred in producing one more unit of the same product, one will continue making profit. It is there advisable to continue increasing production up to the point where marginal cost equals marginal benefit a point that economists refers to profit maximization level of output.

Producing beyond this point is said to unfavorable because costs of production will exceed the total profits which eventually lead to loss making. This concept is also used in analyzing consumers’ utility. That is in law of diminishing marginal utility which states that the amount of marginal utility tends to decrease with every additional unit of a good consumed. Consumers are rational being and they make decisions at the margin. In deciding whether to consume an additional unit of a good, consumer compare the marginal utility and the additional marginal utility that must be given up in order to obtain that commodity.

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