Profitability Ratios

And finance Allah shmoop what is marginal analysis All right

people You know that moment the one when you think

just one more One more cookie One more cup of

coffee One more bite and then just one more And

you know one more until you realize that one more

one more time maybe is not such a good idea

when you're having that just one more moment Economists call

this thinking on the margin The margin is just when

you add one more For instance your marginal benefit of

just one more cookie after you've already had one is

probably still maybe net positive But after you've had ten

cookies and your stomachs of rumbling saying What are you

doing to me Why to which you say I'm a

slave to my taste buds What's it to you Stomach

When the cost of just one Mohr outweighs the benefits

it's usually time to call it quits Well marginal analysis

is when we look at things from this perspective by

asking what would happen to the output if we added

just one Mohr input Well our cookie examples an example

of the law of diminishing marginal returns which is just

one way we can use marginal analysis diminishing marginal returns

It's when we get less and less benefit from the

same input So we get less and less enjoyment from

each cookie with each additional one that we eat until

eventually It's enjoyable anymore Like your digestive system can only

handle so much Marginal analysis has used everywhere when we

look at consumers consuming when businesses air trying to minimise

costs and when governments air tinkering around with the financial

models on howto incentivize us Teo do things any time

you see the word marginal Like in marginal cost of

production and marginal propensity to consume it refers to thinking

on the margin when the input changes a tiny bit

Well how does that affect the output in it What

rate for instance marginal propensity to consume asks when consumers

have more disposable income in their pockets How much more

money are they in fact spending well as opposed to

investing it or hoarding it under your mattress Because you

forgot inflation was a thing Oops What marginal analysis is

important for firms as well as cookie eaters Firms want

to make just one more just one more Just one

more of whatever they're selling like say a waffle irons

that make keyboard shaped waffles until they stopped making money

selling them the keyboard shaped waffle iron Producers find that

sweet spot where marginal costs equal marginal revenue which is

where the cost of just one more waffle iron equals

the revenue they make by selling that one more waffle

iron right If they go below it like they can't

sell it well then there actually losing money producing more

waffle irons Well just like when you ate cookies you

basically ate them until your marginal cost equalled your marginal

benefit As long as the marginal benefit is higher than

the marginal cost it's hard to say no to the

cookies whispering your name from the sugar stores in the

kitchen But when all of a sudden you realize eating

one more cookie is going to do more harm than

good when your marginal costs of just one more cookie

is higher than your marginal benefit of just one more

cookie well then you call it quits Unless you're a

mascots they want then your marginal cost Might it also

be benefits But we'll save that complication for Advanced Micro

economics The government uses marginal analysis on a mega scale

in the aggregate as economists say like when the Fed

is in the Federal Reserve lowers interest rates Jost a

smidge of a percentage making borrowing money cheaper to try

to get people to borrow just a smidge more Right

Okay well marginal analysis is all about tinkering at a

little more Take away a little less to see what

happens next time Your tinkering well maybe with deciding how

many keyboard shaped waffles you should make with your new

keyboard Waffle Iron Well just remember now you're thinking like 00:03:41.543 --> [endTime] an economist tasty