06FMA119ASlides34

# 06FMA119ASlides34 - 3.4 Marginal Functions in Economics...

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3.4 Marginal Functions in Economics

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Marginal Analysis Marginal analysis is the study of the rate of change of economic quantities. An economist is not merely concerned with the value of an economy's gross domestic product (GDP) at a given time but is equally concerned with the rate at which it is growing or declining. A manufacturer is not only interested in the total cost of corresponding to a certain level of production of a commodity, but also is interested in the rate of change of the total cost with respect to the level of production.
Supply In a competitive market, a relationship exists between the unit price of a commodity and the commodity’s availability in the market. In general, an increase in the commodity’s unit price induces the producer to increase the supply of the commodity. The higher unit price, the more the producer is willing to produce.

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Supply Equation The equation that expresses the relation between the unit price and the quantity supplied is called a supply equation defined by . In general, increases as x increases. x f p x f p
Demand In a free-market economy, consumer demand for a particular commodity depends on the commodity’s unit price. A demand equation expresses the relationship between the unit price p and the quantity demanded x . In general, decreases as x increases. The more you want to buy, the unit price should be less. x f p x f p

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Cost Functions The total cost is the cost of operating a b usiness. Usually includes fixed costs and variable costs . The cost function C ( x ) is a function of the total cost of operating a business. The actual cost incurred in producing an a dditional unit of a certain commodity given that a plant is already at a level of operatio n is called the marginal cost .
Rate of Change of Cost Function Suppose the total cost in dollars incurred each week by Polaraire for manufacturing refrigerato rs is given by the total cost function a. What is the actual cost incurred for manufacturi ng the 251st refrigerator? b. Find the rate of change of the total cost functio n with respect to when .

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