Decision making by individuals and firms - Making how much decisions: the role of Marginal Analysis

4 important questions on Decision making by individuals and firms - Making how much decisions: the role of Marginal Analysis

We understand how much decisions by using? What is it?

Marginal analysis is an analysis that involves comparing the benefit if doing a little bit more of some activity, to the cost of doing of that activity.

Why is called marginal analysis "margin"

A margin is an edge, and with marginal analysis you push out the edge a bit, and make a tiny decision and see if that was a good move

How do we describe the decreasing marginal benefit of each unit that is produced

As the addtional unit that in produced increases it yield a smaller benefit from the decision to produce one more.
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What is the decreasing marginal benefit curve? What is the shape and what are the curves?

  • It is a downward sloping curve, the hieght of each shaded bar is decreasing in height, and looking at the midpoint of the top of each bar we can see that the marginal benefit is decreasing

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