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The document discusses marginal analysis and how it can be applied when making business decisions. It provides an example of using marginal analysis to determine whether a coffee shop should offer plant-based milk alternatives. The coffee shop would estimate customer demand, calculate the costs and potential increased revenue, and compare the marginal costs and benefits to inform their decision. The document also discusses how marginal utility may diminish as customers consume more of an item over time, so ongoing evaluation of customer feedback and sales data is important. It reflects on how marginal analysis could have helped the author when they ran a street food business and customers requested a more expensive food item.

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34 views2 pages

Ab 1

The document discusses marginal analysis and how it can be applied when making business decisions. It provides an example of using marginal analysis to determine whether a coffee shop should offer plant-based milk alternatives. The coffee shop would estimate customer demand, calculate the costs and potential increased revenue, and compare the marginal costs and benefits to inform their decision. The document also discusses how marginal utility may diminish as customers consume more of an item over time, so ongoing evaluation of customer feedback and sales data is important. It reflects on how marginal analysis could have helped the author when they ran a street food business and customers requested a more expensive food item.

Uploaded by

sanpoung809
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Assignment Activity

By
Nang San Poung
Marginal analysis is accessing the additional cost or benefit of producing or consuming one more unit of a
good or service. It also analyzes the incremental changes in costs and benefits resulting from small
changes in production or consumption levels. On the other hand, the law of diminishing marginal utility
states that as a person consumes more units of a specific good or service, the additional satisfaction or
utility begins to decrease ( Shapiro, D., MacDonald, D., Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui,
Andres., Keenan, D., Moledina, A., Richardson, C., & Sonenshine, R. (2023)).
In the example of deciding whether to offer plant-based milk alternatives to my coffee shop, using
marginal analysis can help to make the decision easier. It allows us to compare the cost and benefits of
offering plant-based milk alternatives in which the cost of purchasing for stocking these alternatives and
the increase in revenue from attracting new customers or satisfying the preferences of existing ones.
Furthermore, marginal analysis helps us to assess whether offering these alternatives provides a
competitive advantage over other coffee shops in the area. Moreover, it can assist us to consider the
impact on customer retention and royalty. In this scenario, I would check the current situation first and
estimate the demanding of the customers. Then, I will determine the cost and revenue of the incremental
of offering the plant-based milk alternatives. It’s also crucial to consider the environmental and ethical
factors. For the last, I will compare the marginal cost and benefit of these alternatives and making final
decision.
As I mentioned above, as a person consumes more units of goods or services, the utility will decrease.
Introducing plant-based milk options can provide variety to customers and cater to different preferences
and these option may increase utility for customers who value such choices. However, as the customers
try and become accustomed to these option, the marginal utility of these alternatives may begin to
diminish. In this situation, we should balance the cost and benefit of the option by accessing the impact of
profitability to consider the potential diminishing returns. In the same way, it is also crucial to understand
the dynamic of market demand. In addition, evaluating customers’ feedback, sales data, and market trends
are helpful to access the ongoing utility and demand for plant-based milk alternatives.
Reflecting on my real-life situation, I had a small business that I sells traditional street food which roasted
the food of choice including mushrooms, vegetables, seafood, and meat. Just like the above example, the
customers are requesting fish as the food choice. Unfortunately, fish was more expensive than other food.
At the time, I didn’t know anything about the economy. So, I added fish for 4 or 5 days as one of the food
choices when there are more requests from my customers, and if there were none I just stopped. I just
repeat that cycle until I had to end my business because of my mom’s health. With the marginal analysis, I
would have asked for customers’ feedback and evaluated the cost and benefit of the options, and offered
the satisfaction for the customers.

References:
Shapiro, D., MacDonald, D., Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, Andres., Keenan, D.,
Moledina, A., Richardson, C., & Sonenshine, R. (2023). Principles of microeconomics (3rd ed.).

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