Question

One key lesson that you have learnt as a student of Managerial Economics is that, average and marginal relationships provide a lot of insights into the effective management of a business. Draw on your life experience to explain the importance of average and marginal relationships in your day-to-day business transactions.

Answer 1

The average and marginal relationships plays an important role in the business for the day-to-day business decision-making process. Average cost informs the business how much expenses incurred while producing a single of item. Marginal cost depicts the business costs at a very definite point in time and helps business to understand how much an additional cost will incur while producing one extra unit of an item. Both helps in computation of the cost of the product; and in determining the final price of an item and cover all its expenses through it. Marginal cost method helps the business to raise its profitability at the production level and the average cost helps the business to decrease the cost at the production level