Tuesday, October 25, 2016

180. Marginal Cost

Marginal cost and revenue

Marginal cost is the additional cost that a firm incurs to produce one more item. Marginal revenue is the additional revenue earned in selling one more item.

Marginal Cost: the cost added by producing one extra item of a product. Marginal Revenue: the additional revenue that will be generated by increasing product sales by one unit. It can also be described as the unit revenue the last item sold has generated for the firm.

Remember cost is made up of a fixed component (that does not change in relation to output) and a variable component (that which varies directly in relation to output).

Fixed costs are expenses such as Rent and Salaries (one has to pay these irrespective of how many units are produced) Variable costs are normally the raw materials that are used in the manufacture of the product ( and one can see that, for example, if you make wooden tables, there will be a direct relationship between the amount of wood used and the number of tables made.

Sunday, October 23, 2016

179. The SA Economy - what is the problem?

During the 1960's, South Africa had one of the fastest growing economies in the... world. In the first three years of the decade GDP rose by 9.3%, more than any economy in Europe or North America.(pallister, Stewart and Lepper - SA Inc.) This was during the Sharpeville years and against all odds. I cannot see why we have to be content with a 0,3% growth rate today (2016) - we are in so many ways in a better position to solve the problem.

Wednesday, October 12, 2016

178. TANSTAAFL - How many dying babies must pay for your fantasy?

In a recent Business Day column, Repeat after me: there are no free lunches, Leon Louw highlights a disturbing trend – the fantasy that policy decisions have no costs. Louw says: “In the fantasy free-lunch world, governments confer cost-free blessings on subjects …” … a trend made visible via the #datamustfall and #feesmustfall campaigns, amongst others. Louw points out that “People who allocate their own resources to themselves worry about cost and quality; people who allocate their own resources to others worry about cost not quality; people who allocate someone else’s resources to themselves worry about quality not cost; and people who allocate someone else’s resources to someone else worry about neither cost nor quality.” Louw proposes: “Next time someone says “they should do so and so”, ask “at what cost?” Do they want more rape, infant mortality or destitution, for instance? From what — at what cost — do they want resources diverted to what they propose? Encourage them to start with what they want to sacrifice. “I want fewer teachers and more rhino poaching so that the rich can fly SAA”, perhaps.


Friday, October 7, 2016

177. Rescue kit


176. MBA Economics - Exam prep


The following should be regarded as key areas for a student in Economics:

The Production Possibility Frontier is a useful tool to explain “opportunity cost”, efficiency (productive and allocative) and can be used to demonstrate economic growth through technological innovation and the benefits of trade.

Then measuring the Economy – Understanding the circular flow (Goods/services and factors)
and  Gross Domestic Product (GDP) as a key component in measuring the flow of income and spending goes without saying.

This too will have a bearing on the Economic policies (Fiscal, Monetary and regulatory policies) that can be used to ensure the achievement of all macro-economic objectives.

Unemployment is regarded as a key Macro-economic objective and should therefore be regarded as important – the micro-economic argument for the cause of unemployment in the case of Government intervention in the market through minimum wages (price floors) is crucial.
As a backdrop to this – the various types of unemployment should be known and policies to reduce unemployment.

It is also useful to be able to relate unemployment to the AS/AD Model.

Specifically with regards to Micro-economics it is important that the student understands how the price mechanism works in the market (supply and demand and the market clearing price – the equilibrium)
This includes price elasticity, the equilibrium position of a firm under perfect market conditions as well as under monopolistic and to a lesser degree the other two conditions (oligopoly and monopolistic competition). The conditions for perfect markets should be known.

Then the issues surrounding Economic growth (in particular those factors that affects shifts in the position of the aggregate demand curve (point b on page 89 of the MBA study guide). The meaning of “sustainable economic growth”  (the “advantages and disadvantages” of economic growth) as well as the economic growth v economic development argument.

Other important areas are International trade, exchange rates and  barriers to trade (p 112) – protectionist pressures and the negative effects thereof. As part of this the concepts of Absolute and Comparative advantage should be understood. The concept of globalisation  should be undertood.

A basic understanding of economic systems (Free Markets, Socialist and economies).

AS/AD and how it relates to Inflation, production, income/expenditure (45-degree graph and the consumption function) and employment as well as a detailed knowledge of the concepts, the effects and how these may be affected by Monetary, Fiscal and Regulatory policies. Also how these relate to the Economic growth of a country.

The learner should also be aware of the effect of policies as they relate Nationalisation and  Privatisation.