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Assignment Nos.3 Optimal Decision Using Marginal Analysis

The document discusses marginal revenue and marginal cost, explaining that marginal revenue is the change in total revenue from selling one more unit of a good while marginal cost is the change in total cost from producing one more unit; analyzing these metrics allows companies to maximize profits by producing where marginal revenue equals marginal cost. It also describes how to conduct a cost-benefit analysis to evaluate decisions by identifying associated costs and benefits and comparing them quantitatively.

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50 views

Assignment Nos.3 Optimal Decision Using Marginal Analysis

The document discusses marginal revenue and marginal cost, explaining that marginal revenue is the change in total revenue from selling one more unit of a good while marginal cost is the change in total cost from producing one more unit; analyzing these metrics allows companies to maximize profits by producing where marginal revenue equals marginal cost. It also describes how to conduct a cost-benefit analysis to evaluate decisions by identifying associated costs and benefits and comparing them quantitatively.

Uploaded by

Kezia
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment Nos.

3
Optimal Decision Using Marginal Analysis

Please answer the following questions and submit on the deadline date.

1. Click the link on this video on the difference between Marginal Revenue
and Marginal Cost

On the point of view of the economist/manager how would this video help
them in analysing the cost and benefit to arrive at a decision for an
organization? You may cite an example to explain your point of view.

What is marginal revenue? It measures the changes in the revenue when one
additional unit of product is sold. Assume that a company sells bag for unit sales
of ₱3,000, sells an average of 10 bags a month, and earns ₱30,000 over that
timeframe. Bags become very popular, and same company can now sell 11 bags
for each ₱3,000 each for a monthly revenue of ₱30,000. Therefore, the marginal
revenue for the 11th bag is ₱3,000.

This explain how marginal


revenue calculated. Divide
total revenue by the
change in quantity sold. In
calculus terms, the
marginal revenue (MR) is
that the derivative of the
whole revenue (TR)
function with regard to the
amount.
How Can Marginal Revenue Increase? Marginal revenue increases whenever
the revenue received from producing one additional unit of a good grows faster
or shrinks more slowly than its incremental cost of production. Increasing
marginal revenue could also be a symbol that the company is producing
insufficient relative to consumer demand, which there are profit opportunities if
production expands.

Balancing the scales of marginal revenue, in equilibrium, marginal revenue


equals marginal costs; there's no economic profit in equilibrium. Markets never
reach equilibrium within the real world; they only tend toward a dynamically
changing equilibrium. Marginal revenue may increase because consumer
demands have shifted and bid up the worth of a good or service. It could even be
that marginal costs are less than they were before.

What is marginal cost? Production costs include every expense related to making
a good or service. Production costs have a two segments: fixed costs and
variable costs. Fixed costs are the relatively stable, ongoing costs of operating a
business that aren't dependent to production levels. They include general
overhead expenses like salaries and wages, building rental payments, utility
costs and etc. Variable costs, meanwhile, are those directly associated with ,
which vary with
production levels, like the
value of materials used
in production or the value
of operating machinery
within the process of
production. It measures
the change within the
total cost of a good that
arises from producing
one additional unit of that
good, it called marginal cost of production.
This explain how marginal cost calculated. Divide change in total cost (C) to the
change in quantity (Q). The marginal cost or incremental cost is calculated by
taking the first derivative of the entire cost function with reference to the quantity.

There are two essential calculations that help companies analyse and maximize
their profits this are the marginal revenue and marginal cost. Taken together,
marginal revenue and marginal cost are used to determine how many units of a
given product or service of a corporation should produce, as well as the price per
unit.

It is a process by which organizations can analyse decisions, systems or


projects, or determine a worth for intangibles it is called cost benefit analysis. The
model is made by identifying the advantages of an action also the associated
costs, and subtracting the prices from benefits. A cost benefit analysis will yield
concrete results that can used to develop reasonable conclusions round the
feasibility and/or advisability of a choice or situation.

I learned in that video that an economist should analyse the goals of the
organization and also analyse the data of the cost and revenue to provide
necessary information for the organization, before deciding for the organization.
When managing a business you should always check first how much is the cost
of producing your product before pricing it.

How to do a Cost Benefit Analysis? First, establish a framework to stipulate the


parameters of the analysis. Next, Identify costs and benefits in order that they
can categorized by type, and intent. Third, Calculate costs and benefits across
the assumed life of a project or initiative. Next, Compare cost and benefits using
aggregate information. Last, Analyse results and make an informed, final
recommendation.

References:
https://www.investopedia.com/ask/answers/041315/how-marginal-revenue-related-
marginal-cost-production.asp
https://www.investopedia.com/terms/c/cost-benefitanalysis.asp
https://www.smartsheet.com/expert-guide-cost-benefit-analysis#:~:text=To
%20accomplish%20this%2C%20many%20organizations,%2C%20resources%2C
%20and%20risk%20involved.

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