Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 3, Problem 1Q
To determine
Definition of optimization and to distinguish between the total value and marginal analysis optimization.
Expert Solution & Answer
Explanation of Solution
Optimization is one of the major principles, upon which economics is based. It refers to the process of an economic agent choosing the most satisfying option under the given feasibility constraints.
Total value optimization helps us to pick the best alternative by calculating the total benefit derived from various options. It can be in terms of benefit, cost or net benefit. Whichever alternative yields the highest (lowest) total benefit (cost) or net total benefit becomes the chosen alternative in this case.
Marginal analysis, on the other hand, concentrates on evaluating how the value of the alternatives change with an increase in a single unit. This can be done by observing the change in net benefit, costs or benefit as the magnitude increases by a single unit. Marginal refers to the change that occurs due to the addition of one unit. If the marginal costs of an alternative exceed its marginal benefit, that alternative is not considered feasible.
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Chapter 3 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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