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Marginal Analysis—How much is too much?

Marginal Analysis—How much is too much?. In the following scenarios explain the course of action you would take and be able to assert why…

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Marginal Analysis—How much is too much?

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  1. Marginal Analysis—How much is too much? • In the following scenarios explain the course of action you would take and be able to assert why… • You and your friend exercise for the upcoming Spring sport season 3 days a week. Your friend suggests that you up the days of exercise to 5. How much is too much exercise? • You greatly enjoy the benefits you get from working 32 hours a week. In order to try and increase those benefits, you are thinking about increasing those hours to 50 per week. How much work is too much work? • Succeeding in school is your #1 priority. From the minute you get home to 9 o’ clock you focus on studying for upcoming tests/completing homework. How much studying is too much studying? • You are the manager of a factory producing toothbrushes for the state of Pennsylvania. Every toothbrush costs you $1.00 to produce and you can sell each toothbrush for $2.50 on the first 10,000 toothbrushes. For every toothbrush you produce after that, it costs you $1.75 to produce, yet the demand for your product will decrease indefinitely for every toothbrush after the first 10,000. How many toothbrushes are too many toothbrushes ?

  2. Explanation • A way to examine economic decision making… • The process of identifying the benefits and costs of different alternatives by examining the incremental effect on total revenue and total cost caused by a very small (just one unit) change in the output or input of each alternative. Marginal analysis supports decision-making based on marginal or incremental changes to resources instead of one based on totals or averages. • What do you gain in taking this action vs. a different action? To what degree will you act vs. when is enough, enough? • Exercise, work, study, production examples… • All have a cost, benefit, and alternative (opportunity cost measurement)

  3. In Business… • When they produce… • Decision making behind the scenes done in a unit by unit basis… • Reflects microeconomic perspective • Average person, average day, in average mood

  4. Act… • “Pollution” Scenario sheet…15 minutes to complete • Review together

  5. Economic Incentives • What are they? • Where do you see them? • Why do they matter? • http://www.youtube.com/watch?v=gF2mKIP9WnI • Where is the incentive?

  6. Emerging in the Workplace • Huge business reasons to examine incentives… http://www.youtube.com/watch?v=oUWGFEKgjaY Is an incentive more powerful than the work itself?

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