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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
studying) is horizontal to
illustrate this point.
Marginal Costs of
arginal Costs of
A quick look at Exhibit
7-7 says that the right
amount of time to study is
two hours. If you study less
than two hours (say, one
hour), you will forfeit all the
net benefits (marginal benThe right
efits greater than marginal
costs) you could have
time to study
reaped by studying an additional hour. If you study
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.
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
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.
- Winter '14