Question

Q5. What is the incremental analysis? Use the incremental analysis to find the Economics efficiency in the following production table. (1 points) Detailed information and discussion is necessary. (Hint: Please see the additional class notes of incremental analysis of chapter 11 on the student portal)

Output (Q)	Net Revenue	Marginal Revenue	Amount of Labor	Total cost of Labor	Marginal cost of Labor
0	0		0	0
20	1000	1000	1	600	600
50	2500	1500	2	1100	500
84	4200	1700	3	1550	450
110	5500	560	4	2030	480
120	6050	510	5	2560	530
126	6350	300	6	3160	600
122	6150	-200	7	3960	800

Answer 1

Q.5)

Incremental analysis:

When the change in costs(marginal or additional cost) occurs due to change in the activity from one level to another, whether it derives proportionally more additional revenue(Marginal revenue) or not.Increamental analysis is also refer as marginal analysis.

Increamental analysis suggests firm, whether firm should produce additional units of output or not. So it is an decision making tool.

In this illustration;

When the output is 20 units Marginal revenue is $1000, while Marginal cost is $600. So of marginal is more than marginal cost, company should keep on producing additional units, as per Increamental analysis technique.

When the output is 50 units marginal revenue is more than Marginal cost ie. $1500> $500.

When the output is 84 units, Marginal revenue is more than marginal cost. Ie. $1700>$450.

When the output is 110 units, Marginal revenue is more than marginal cost. Ie. $560>$480.

But when, firm is producing 120 units, marginal revenue $510 which is less than Marginal cost ie. $530. So Marginal cost for producing 10(120-110) units is $530, while Marginal revenue is just $510.

Therefore, Marginal loss is ($530-$510)= $20

Hence firm needs to stop producing output after 110 units, because if the firm is producing additional units of output, firm has to incur marginal loss. ie. When firm is producing 10 additional units, firm has to incur marginal loss of $20.. and so on.