Definitions Marginal Benefit the additional or extra benefit
Definitions: • Marginal Benefit: the additional or extra benefit associated with an action • Marginal Cost: the additional or extra opportunity cost associated with an action • Law of Diminishing Return: The tendency for a continuing application of effort or skill toward a particular project or goal to decline in effectiveness after a certain level of result has been achieved.
Law of Diminishing Returns Mr. Johnson’s Hole Digging Co. “We dig ‘em, you fill ‘em!”
Mr. Johnson’s Hole Digging Co. Four Factors of Production Capital – Loan from my Dad Entrepreneurship – Mr. Johnson Land Natural Resources – Wood and Steel for the shovels Labor – 1 Worker
Expanding the Business: Should I hire another worker or buy another shovel?
Combinations of Inputs Output YES or NO 1 Worker + 1 Shovel 2 holes/day STARTING POINT 1 Worker + 2 Shovels 2 holes/day NO 2 Workers + 1 Shovel 5 holes/day YES 3 Workers + 1 Shovel 7 holes/day ? ?
Question How would the machine to the right impact the productivity of my hole-digging operation?
Definitions: • Marginal Benefit: the additional or extra benefit associated with an action • Marginal Cost: the additional or extra opportunity cost associated with an action • Law of Diminishing Return: The tendency for a continuing application of effort or skill toward a particular project or goal to decline in effectiveness after a certain level of result has been achieved.
Question: Using the cost-benefit analysis, identify the number of widgets Gadget. Co should make per month and explain why.
- Slides: 8