Question

Cite three examples of recent decisions you made in which you, at least implicitly, weighed marginal cost and marginal benefit.

Short answer

The examples are as follows:-

• In day-to-day life, a person may consume snacks. The marginal analysis will be required to determine the extra units he would consume. You need to decide how many extra units you will consume depending on the marginal analysis.
• As exams approach, students need to increase their hours of study. The marginal cost for students is leisure time, and the benefit is the number of chapters they learn.
• If one chooses to earn more than what they have, they have to choose between their time (marginal cost) and an expansion in their income (marginal benefit).

Step-by-step solution

Understanding marginal cost and marginal benefit

Marginal cost is the increase in production cost incurred in producing one additional unit.It adds to the variable cost on each successive unit, such as making one extra packet of chips.

Marginal benefit is the additional benefit or welfare you enjoy by consuming one more unit. It is about the difference in benefit by a margin of one unit, such as the fee received by the institute on admitting one more student in the class.

Explanation for example 1

The price of one cheeseburger is $3, and the person has only $3 in his pocket. He wants to buy one burger for a beggar with that money, though he will have no money after that. The marginal cost for the person will be$3. On the other hand, the person's marginal benefit will be the utility or satisfaction gained by helping the hungry beggar eat.

Explanation for example 2

Suppose a student is preparing for the exam but has not completed the syllabus and need one more hour to complete one more chapter. In this case, the student's marginal cost will be one hour of his leisure time, and the marginal benefit will be one chapter that he is required to finish for the exam.

Explanation for example 3

If a person can earn $2 more by working an extra hour, they would increase their earnings. However, the final decision will depend on the marginal cost and benefit analysis.

Here, the marginal cost will be one hour, and the marginal benefit will be $2.If the marginal benefit exceeds the marginal cost, the person will consider working for an extra hour. On the contrary, if the marginal cost exceeds the marginal benefit, the person would not be working extra hours.