Tag: Economics – Others

Isoquants uses ordinal properties to rank goods. True False
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False

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Show an example of how to find marginal analysis for econ
Marginal analysis compares the additional benefit and additional cost of producing one more unit. In economics, this typically involves computing marginal cost (MC) and marginal revenue (MR) or marginal benefit (MB), then finding the quantity where MB = MC (or MR = MC for firms maximizing profit). Below is a clear step-by-step example with a numerical cost and revenue function.
Step-by-step procedure
Write down total cost (C(q)) and total revenue (R(q)) as functions of quantity q.
Compute marginal cost: MC(q) = dC/dq.
Compute marginal revenue: MR(q) = dR/dq (or marginal benefit MB if appropriate).
Set MR(q) = MC(q) and solve for q* (the optimal quantity). Verify second-order conditions or reasonability if needed.
Compute profit or net benefit at q* and compare nearby quantities if required.
Numerical example
Suppose:
C(q) = 100 + 5q + 0.5q^2 (total cost)
R(q) = 20q (total revenue)
Compute marginal functions:
MC(q) = dC/dq = 5 + q
MR(q) = dR/dq = 20
Set MR = MC to find the optimal q:
20 = 5 + q
q* = 15
Now compute total revenue, total cost, and profit at q*:
R(15) = 20 * 15 = 300
C(15) = 100 + 5*15 + 0.5*(15^2) = 100 + 75 + 112.5 = 287.5
Profit = R(15) – C(15) = 300 – 287.5 = 12.5
Interpretation: At q = 15, marginal revenue equals marginal cost (MR = MC = 20), so producing 15 units maximizes profit (given these functions). Producing one more unit beyond 15 would have MC > MR, reducing profit; producing one fewer unit would have MR > MC, so profit could be increased by producing more.