251Ch1lecture4Notes0 - If MB = MC no additional advantage...

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8/22/2011 1 Chapter 1: What is Economics? Lecture 4: Marginal cost and marginal benefit Ch1: What is Economics ? Lecture 4: Marginal cost and marginal benefit 2 Economic cost of multiple quantities • What if decision isn’t a ‘lump sum’ decision? – Need cost and benefit of each individual unit Marginal benefit = Benefit of one additional unit of a good or activity Marginal cost = Cost of one additional unit of a good or activity 3 Marginal cost and marginal benefit • Compare marginal benefit (MB) with marginal cost (MC) for each unit – If MB > MC increase quantity – If MB < MC decrease quantity
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Unformatted text preview: If MB = MC no additional advantage to changing quantity Ch1: What is Economics ? Lecture 4: Marginal cost and marginal benefit How marginal benefit and marginal cost change Marginal benefit generally decreases as quantity increases Marginal cost generally increases as quantity increases Ch1: What is Economics ? Lecture 4: Marginal cost and marginal benefit 5 Graphing marginal cost and marginal benefit MC MB Quantity of education (years) $ Q* At Q*, MC=MB Ch1: What is Economics ? Lecture 4: Marginal cost and marginal benefit Below Q*, MB&gt;MC Above Q*, MB&lt;MC...
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This note was uploaded on 09/21/2011 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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