The cool thing about economics is that it takes into account all social costs (and benefits for that matter)...not just the ones recorded on firms’ balance sheets. The marginal social cost (MSC) is marginal private cost (MPC) plus the marginal external cost (MEC).
The MPC is the marginal cost that a firm pays cash-money to make one more unit of a good or service (ergo the “marginal”). The MEC is the cost that producing that same unit of a good or service has that’s an externality (which can be positive or negative) on society. MSC is both MPC and MEC, showing the total marginal cost of society for the production of one more unit of a...something.
Take a ring pop factory, for example. They have their costs. Mostly white sugar and plastic to make their ring pops. But all the ring pops leave those plastic bits with a bit of sugar on them, which leads to wildlife deaths. Yep, that’s the (negative, in this case) MEC. Oof. The MSC would include both the firm’s production costs for one more ring pop, as well as the wildlife deaths from production of one more pop.
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Econ: What are Marginal Product and Dimi...8 Views
And finance Allah shmoop what are marginal product and diminishing
returns All right people when you're running a business you
invest in your inputs everything from large fixed costs like
that robot assembly unit there to labor with human beings
and or dogs In return for your inputs you get
output But how do you know if it's worth it
or not Adm Or of a given input finding the
marginal product of an input can help you answer this
excellent question Well the marginal product of an input whether
it be physical inputs or labour is the increasing output
as a result of one additional unit of that input
Okay let's make sense of this to see what we
mean Let's take a look at Black Beard who for
having a very short pirating career is nonetheless known for
being a decent manager of his crew At first Black
Beard had a small crew because his crew was small
Their rum booty was also pretty small They couldn't battle
big ships that were holding the most gold and they
could only carry so much of it even when they
won in stolen well black Beard hired another pirate which
increased their total booty from a thousand pieces of eight
to thirteen hundred pieces of eight since the booty went
from a thousand of thirteen hundred thanks to the additional
of that new employees will The marginal product of that
new hire was three hundred pieces of eight and if
he cost less than three hundred pieces of aid right
he was a bargain At least he was positive The
results of another mate in the crew were so great
that black beard decided to hire another pirate and then
another and then another Well even though the marginal product
with each new input of labor was less than last
he kept hiring more pirates Since each new pirate was
still contributing positively to Ah hire total output well with
a bigger crew they were able to take on bigger
ships increasing their total output All other inputs like their
pirate ships stayed constant It was the same ship as
the crew's size increased Well so did the amount of
booty they were scoring and who doesn't like to score
booty But the law of diminishing returns has a way
of making it rain on everyone's parade The law of
diminishing returns pops up in many places in economics including
marginal product like right here while increasing a marginal product
like labor for instance will increase total output for awhile
Eventually additional units of that input will result in a
stagnant or decreased total output Well after Black Beard's most
recent pirate higher alluding went terribly wrong There were so
many pirates on his ship that they couldn't loot effectively
They were bumping into each other accidentally shooting each other
right in the head or worse and they were frustrated
because of it Well all of a sudden they're total
output Their booty dropped from three thousand pieces of eight
to only twenty five hundred pieces of eight Argh Yeah
that's what they said Well in Black Beard's case his
output was initially increasing as he grew his crew but
eventually decreased because of it The last pirate he hired
had a negative marginal product of five hundred pieces of
eight Since that last additional unit of labor input caused
total output to go from three thousand pieces of eight
to twenty five hundred piece of aid or something that
was just making So what's a pyre to do Well
he could get another ship and start a franchise or
a fleet Or he could let that last pirate walk
the plank and just stick with one ship and his
given number of pirates A zit is well the more
the merrier Up to a point Ask any pirate and
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