S1 - Fundamentals

Question 1

what is marginal analysis

Answer 1

Marginal analysis - changing a control variable for optimal benefits
objective is to maximise net benefit
Optimal economic decisions made at the margin
NB(Q) = B(Q) - C(Q)
Marginal benefit = change in total benefits arising from a change in managerial control variable
Marginal cost = change in total cots arising from a change on managerial control variable
Marginal net benefits = MB(Q) - MC(Q)
Maximise by increasing control variable to where MB = MC
Marginal net benefits would be 0 and nothing more can be gained by further changes in that variable

Question 1

what is economics

Answer 1

the science of making decisions in the presence of scare resources
How to direct resources in a way that most efficiently achieves a managerial goal
Decision making process

Question 2

what is the marginal principle

Answer 2

slope of a continuous function is the derivative or marginal value of that function
Marginal = derivative of total
When non linear
MB = dB(Q) / dQ
MC = dC(Q) / dQ
MNB = dNB(Q) / dQ

Question 3

explain the marginal analysis graphs

Answer 3

Biggest vertical difference between C(Q) and B(Q) on graph is the maximum net benefit
Tangent to C(Q) and B(Q) is the marginal slopes MB(Q) and MC(Q)
Optimal level of a control variable Q
usually quantity Q
Maximum net benefits where MC(Q) and MB(Q) intersect

Question 4

what is the derivative

Answer 4

slope of tangent line
At what rate will cost increase when you produce one more unit
Helps us know When to stop producing