What does thinking at the margin help with

Once your thirst is quenched, the second and third glasses are less and less appealing. Feeling waterlogged, you will eventually refuse water altogether. De Minimis , by Allen R. But those who advocate free-range and organic produce are trading off costs against other values—such as my chickens having a little elbow room and a chance to smell some roses. We could, I suppose, have more costly free-range lettuce if we just let wind power turbines scatter the seeds instead of planting them in tidy, efficient rows.

Recycling is appealing because it seems to offer a way to simultaneously reduce the amount of waste disposed in landfills and to save natural resources…. Carl Menger , biography in the Concise Encyclopedia of Economics.

Carl Menger has the twin distinctions of being the founder of Austrian economics and a cofounder of the marginal utility revolution. Menger worked separately from William Jevons and Leon Walras and reached similar conclusions by a different method.

Rather, he wrote, goods are valuable because they serve various uses whose importance differs. For example, the first pails of water are used to satisfy the most important uses, and successive pails are used for less and less important purposes. Leon Walras , biography in the Concise Encyclopedia of Economics. We not only admit, but positively claim, that there is a marginal region where wages are adjusted.

It furnishes a large outlet for labor; and what men are able to get in this larger marginal field sets the standard of wages. This field is to labor what, in practical thought, the European market is to wheat: it is a place in which any possible surplus of labor may be disposed of at some living rate.

If we find such a market, we definitely solve the problem of the law of wages…. Here, then, is a marginal fraction of the supply of labor; and it would seem that it is in a position to set the market rate of pay for all labor. Here, also, is a direct connection between the pay of this marginal part of the laboring force and the product that can be specifically attributed to it.

Does this product of marginal labor set the standard of wages, as the price of a final increment sets the general standard of value of commodities? If so, the law of wages would stand thus: 1 By a common mercantile rule, all men of a given degree of ability must take what marginal men of that same ability get.

This principle fixes the market rate of wages. This principle governs wages more remotely, by fixing a natural standard for them. In this formula we are, indeed, near to the law that we are seeking; but we have not yet reached it. The true law, when accurately stated, sounds much like the foregoing one; but between the two there is a vital difference.

In that static condition in which competition would produce its full effects and bring wages to a natural standard, the pay of labor, as has just been shown, would equal the product that could be separately traced to it. We have discovered a limited field in which whatever is produced is due to labor only; but we need to find one that is larger and more elastic.

We have to look for an economic field to which many men may go, and in which they will be virtually rent-free and interest-free. They must be able to work unaided and also untaxed and to create a distinguishable product, all of which they will then get. Many more may utilize instruments of other kinds that are too poor to afford a rent to their owners.

However, weekdays in the dead of winter are another story. In February, you receive very few inquiries — about three per month — not even close to the number it would take to fill your place.

Instead, you operate a mostly empty bed-and-breakfast all winter long. Given the number of inquiries you receive in February, the odds are essentially zero that you will receive enough inquiries in the next 24 hours to fill all of your rooms. You have a pretty good handle on your costs. Microeconomic theory indicates that the lowest offer you should take is the one that exceeds your marginal cost.

Those are sunk costs — past expenditures that cannot be recouped. They think about how little revenue the deal would bring in.

How much more money the rooms generate in the summer months; how high their average costs are and even how much they hate bargain hunters. Margin Photo via Shutterstock. Figuring out costs is a good thing as it will help small business owners make wiser decisions. Yes, I agree with the view that the small business owner should take up the project if Marginal revenue is greater than Marginal Cost.

Now, suppose there is another business opportunity before the owner. In such a situation, the owner should check the opportunity cost of the investment of money and the probable returns from both the prospects. A key economic principle is that rational decision making requires thinking at the margin. This involves a comparison of the additional or marginal benefits and costs of an activity. An example of such rational behaviour would be deciding to drink one more beer or spending one more hour studying only if the additional benefits were greater than the additional costs.

The optimum is where marginal benefit equals marginal cost. And this applies to firms too. A firm maximises its profits by producing the output at which marginal revenue is equal to marginal cost. However, a recent book by the American business guru Clayton Christensen argues that thinking in this way can be a problem.