Section 1.2 Managing Your Personal Finances 17
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decision values.
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to you, missing time with friends may be the opportunity cost of going to
soccer practice or taking an after school job. If getting good grades is a priority,
losing time to study may be the opportunity cost of other choices.
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The decisions you make today will affect your finances tomorrow.
Economics in Action
Marginal Analysis
Marginal analysis can help business owners use their resources in the best way
possible. For example, suppose five workers in a toy factory produce 100 large,
stuffed teddy bears per day. Each worker makes 20 teddy bears. They sew the toy’s
arms, legs, torso, and head separately. Then they stuff the parts and sew them
together. The sewing room has five heavy-duty machines.
The plant manager hires two more workers, but does not buy new machinery.
She reasons that time used to stuff the pieces can be done away from the sewing
machines. This should leave some machines free for the new workers to sew more
teddy bears. The seven workers handle the new work arrangement well and produce
20 teddy bears apiece, or 140 per day.
This success inspires the manager to add one more worker, but she does not
get the results she expects. The number of teddy bears produced is only 152, not
the 160 she expected. Workers average only 19 teddy bears apiece. They must
stand in line to use equipment, which slows them down. The manager realizes that
increasing the total production by only 12 teddy bears daily does not cover the cost
of the eighth worker.
By using marginal analysis, businesses can determine the right number of
workers needed to maximize their profits.