One of the most important microeconomic concepts for a strategic thinker is the use of marginal cost Answer

One of the most important microeconomic
concepts for a strategic thinker is the use of marginal cost & marginal
revenue in decision-making. Locate three to five articles on the web that are
germane to this concept, both in what the concept is, but more importantly how
the concept should be used strategically. Write a brief research paper of
500-700 words that draws from all these sources.

Answer: Marginal revenue and marginal cost, both are microeconomic concepts related to profitability of the organizations. Marginal revenue represents the state of extra amount of revenue brought in by each unit sold. At the other end, Marginal costs represents the additional costs incurred by each extra unit purchased i.e. both concepts ultimately decides the profitability level the organization one is for selling a unit and other is for purchasing a unit respectively.

Both concepts are crucial for understanding an
organizational cost structure and profitability, and are useful for making the
strategic decisions by making changes in price and by making changes in
purchasing policy of each product. These both concepts (Marginal revenue and
costs) are both tied to output volume in distinct ways like; changes in output
volume or changes in purchasing volume, it’s due to increased output, but both
can have different effects on revenue, costs and profitability.

Marginal costs can be reduced by purchasing higher
volumes of (product raw material) units. In addition to price-volume discounts
suppliers’ offers to everyone, specific suppliers can be willing to negotiate
even steeper discounts for their most loyal customers. Thus, as a company
continues, whom to purchase more materials, equipment or inventory due to its
increased output, the company’s marginal costs can continue to decrease.
Marginal production costs could be lowered via economies of scale, which come
from using the same equipment, tools and labor to produce the greater output.

Price increases are virtually and the only way to
increase marginal revenue. As mentioned, marginal revenue stays with same as
volume increases on sales to a range of different customers, but increasing
volume to individual customers usually has the effect of lowering the marginal
revenue due to price-volume discounts. Therefore boosting product quality can
be an effective way to increase the prices (and we can say marginal revenue for
the respective company) while continuing to increase the output volume.

So we can understand, profitability relies on creating
a balance between marginal revenue and marginal costs, so that each unit of
inventory sold brings in a consistent margin above the direct costs where
different profit margins can bring in the different total profit due to the
volume variable i.e. a company with a lower profit margin, for example; may
sell so much more volume than a competitor with higher profit margins that the
company with lower margin brings in more total profit.

Hence, all the strategic decisions of the company are
made at the margin and this theoretical principle is taught in economics
classes across the world where after getting the better understanding of the
concept we can make strategic decisions by effective marginal analysis, which
is about decisions making about alternatives when we have limited resources and
these strategic decisions may include; decisions about employees, inventory and
the shelf space, etc. all involve in decision-making at the margin for the
company or business owner.

References:

For
completing this assignment has researched with considerable queries, analysis,
description and support used in below references for accurate information:

• By Thomas
  Metcalf, Demand Media, What Are the Benefits of Marginal Costs Equal to
  Marginal Revenue? Retrieved From:

• By David Ingram
  of Demand Media The Relationship Between Marginal Revenue & Marginal Cost
  as the Firm Increases Output, Retrieved From:

• By Russell Cooper
  and A. Andrew John, Economics: Theory Through Applications, v. 1.0 (2 Volume
  Set), Retrieved From:

http://catalog.flatworldknowledge.com/bookhub/reader/2223?e=cooperecon-ch07_s04

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