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 ?

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)

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

Act…

• “Pollution” Scenario sheet…15 minutes to complete

• Review together

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?

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?