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The Equi-Marginal Principle can be applied to both consumption as well as production?
(b) Equi-marginal principle
The equi-marginal principle was originally associated with consumption theory and the
law is called 'the law of equi-marginal utility'. The law of equi-marginal utility states that
a utility maximizing consumer distributes his consumption expenditure between various
goods and services he/she consumes in such a way that the marginal utility derived
from each unit of expenditure on various goods and services is the same. The pattern
of consumer's expenditure maximizes a consumer's total utility.
The law of equi-marginal principle has been applied to the allocation of resources
between their alternative uses with a view to maximizing profit in case a firm carries out
more than one business activity. This principle suggests that available resources
(inputs) should be so allocated between the alternative options that the marginal
productivity gain (MP) from the various activities are equalized. For example, suppose
a firm has a total capital of Rs. 100 million which it has the option of spending on three
projects, A, B, and C. Each of these projects requires a unit expenditure of Rs. 10
million. Suppose also that the marginal productivity schedule of each unit of
expenditure on the three projects is given as shown in the following table.
Units of Expenditure Marginal Productivity (MP)
(Rs. 10 million) Project A Project B Project C
1st 501 403 354
2nd 452 305 306
3rd 357 208 209
4th 2010 10 15
5th 10 0 12
Going by the equi-marginal principle, the firm will allocate its total resource (Rs. 100
million) among the projects A, B and C in such a way that marginal product of each
project is the same i.e., MpA = MPB = MPC. It can be seen from the above table that
going, by this rule, the firm will spend 1st, 2nd, 7th, and 10th unit of finance on project A,
3rd, 5th, and 8th unit on Project B, and 4th, 6th, and 9th unit on project C. In all, it puts 4
units of its finances in project A, 3 units each in projects n and C. In other words, of the
total finances of Rs. 100 million, a profit maximization firm would invest rs. 40 million in
project A, Rs. 30 million each in projects B and C. This pattern of investment maximizes
the form's productivity gains. No other pattern will ensure this objective.
The equi-marginal principle suggests that a profit maximizing firms allocates
MpA = MPB = MPC = … = MPN
If cost of project (COP) varies from project to project, then resources are so allocated
that MP per unit of COP is the same. That is, resources are are allocated in such
proportions that
The equi-marginal principle can be applied only where (i) firms have limited investible
resources, (ii) resources have alternative uses, and (iii) the investment in various
alternative uses is subject to diminishing marginal productivity or returns.
What else can I help you with?
Why factory overhead cost is applied on production?
Factory overheads are incurred only and only due to production of the goods. That is why the factory overhead cost is applied to production.
What is a better improvement of a Efficient production?
There are different measures that can be applied to improve production. You should ensure that you hire the right people and give incentives to the employees. Proper training and compliments to those who deliver will improve production.
What is subsistence level of production?
A subsistence level of production is the bare minimum level of production that is needed. This concept can be applied to different situations. In the context of agriculture or farming, subsistence farming is the farmer produces enough food to feed the family and no more. Subsistence farming implies that the farmer and the farmer's family consumes as much as is produces and there is no surplus production. Subsistence farming continues to exist in parts of Latin America and Asia where there are still large quantities of peasants and villages. This concept can also be loosely applied to the means of production where subsistence level of production is producing enough to keep producing for the next cycle of production in which production is producing no profits but the firm is also not losing money.
Why did someone choose to study economics?
Economics is the social science that studies the production, distribution, and consumption of goods and services. economics is the only stubject which can be applied in business and finance but also in crime,[4] education,[5] the family, health, law, politics, religion,[6] social institutions, war,[7] and science. so the student of economics will have knowledge in all the fields. In economics you can compare the currency level with other countries. Economics is the social science that studies the production, distribution, and consumption of goods and services. economics is the only stubject which can be applied in business and finance but also in crime,[4] education,[5] the family, health, law, politics, religion,[6] social institutions, war,[7] and science. so the student of economics will have knowledge in all the fields. In economics you can compare the currency level with other countries. so one should read economics
What term describes the cost of producing one more unit of output?
Where production is already under way, the term "marginal" is applied to the cost of additional products.
The Equi-Marginal Principle can be applied to both consumption as well as production Discuss this statement with the help of an example?
The Equi-Marginal Principle can be applied to both consumption as well as production Discuss this statement with the help of an example?
What is Physics principle applied in elevator?
gravity
Pascal's Principle can be applied to what?
liquids and gases
What the principle of light applied by microscope?
Reflection
What is the principle of light or sound applied microscope?
The principal of light is applied to microscopes, not sound.
Can the Uniformitarian Principle be applied to cultural processes?
yes
Which security principle is being applied?
Implicit Denial
Can the GCF principle of factoring be applied to trinomials?
Yes, it can.
What is pascals principle says that pressure applied to a confined what?
Pascal's principle states that pressure applied to a confined fluid is transmitted undiminished in every direction throughout the fluid.
Why factory overhead cost is applied on production?
Factory overheads are incurred only and only due to production of the goods. That is why the factory overhead cost is applied to production.
Principle applied when you gradually make each flexibility exercise more difficult?
This is called the Principle of Overload.
What is pascals principle applied in?
Pascal's principle is applied in hydraulic systems, such as braking systems in vehicles and hydraulic lifts. It states that a change in pressure applied to a confined fluid is transmitted undiminished to all portions of the fluid and to the walls of its container.
