In the exhibit the marginal cost curve of e x h i b i

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Unformatted text preview: the minute than the third, and so on. amount of time you study economAssume that the marginal costs ics? Explain your answer in terms of studying are constant over time. of Exhibit 7-7. In other words, you are giving up as much by studying the first minute as the second minute, and so on. In the exhibit, the marginal cost curve (of E X H I B I T 7-7 The Marginal studying) is horizontal to Benefits and Benefits and illustrate this point. Marginal Costs of arginal Costs of A quick look at Exhibit Studying Studying 7-7 says that the right amount of time to study is Marginal benefits of studying two hours. If you study less Marginal costs than two hours (say, one of studying hour), you will forfeit all the net benefits (marginal benThe right efits greater than marginal amount of costs) you could have time to study reaped by studying an additional hour. If you study 1 2 3 0 more than two hours, you Hours spent studying are entering into the region where marginal costs (of studying) are greater than What is the right amount of time to study? marginal benefits. The rule Study as long as the marginal benefits of is this: do something as studying are greater than the marginal costs, long as marginal benefits and quit when the marginal benefits equal the are greater than marginal marginal costs. In the diagram, this time costs, and stop when they comes at two hours of studying. are equal. Marginal benefits, marginal costs business firm can produce anywhere from one to millions of units of a good. What is the right amount? As the chapter explains, it is the amount of the good at which marginal revenue equals marginal cost. To determine the right amount of something, an economist would say we need to consider marginal costs and marginal benefits. For example, studying, sleeping, eating, working, and vacationing all involve costs and benefits. Page 182 How much of any activity is too little, how much is too much, and how much is the right amount? The answer is simple, says the economist: the right amount of anything is the amount at which 182 Chapter 7 Business Operations 07 (154-185) EMC Chap 07 11/17/05 5:15 PM Page 183 Reread the previous example from Marianne’s point of view. Do you think that Bob is cheating Marianne by paying her only $200 a day? After all, she brings in $350 a day to Bob. Shouldn’t Marianne get more than $200 a day if she makes Bob $350 better off a day? You need to keep in mind that things are a little more complicated than we have made them out to be. Marianne could very well be working with other employees and with certain machines. Not all of what Marianne “produces” for Bob is the result of Marianne’s work, and her work alone. She brings “$350 a day to Bob,” that is true. But it is really her working with other employees and with certain machinery or tools that ends up producing $350 a day more for Bob. To illustrate, let’s suppose someone goes to work on a farm. We might say that 100 more bushels of wheat were harvested on a given day. Is it that new worker who harvests those 100 addi...
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This document was uploaded on 01/16/2014.

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