11)Describe the principle of marginal equivalence.

Explain why this principle does not apply when

the marginal increase in utility is associated with the consumption of one or both goods

Managerial economics is knowledge that shows the application of economic theory and knowledge
analysis of decision-making which examines how organizations can achieve goals efficiently.

Managerial economics is the application (application) of economic theory and decision science
analysis tools to discuss how an organization can achieve its goals or objectives in the most efficient
manner.

The focus of managerial economics is the concept of profit, where profit is the difference between
total company revenue and total cost.

Managerial Economics and Decision Making

Economic theory predicts and explains economic behavior which is the most important determinant
of decision making. Managerial economic principles of decision-making by managers relating to
allocating scarce resources efficiently, include:

Man, Money, Material, Method

Managerial economics refers to the application of economic theory and decision science tools to find
optimal solutions to various managerial decision problems.

Principles of Managerial Economics

Managerial economic principles aid in rational reasoning and clear thinking. They develop the logical
abilities and strengths of a manager. Some of the important principles of managerial economics are:

1. Marginal and Incremental Principles

This principle states that a decision is said to be rational and healthy if given the firm's goal of
maximizing profit, it leads to an increase in profit, which is in one of two scenarios:

- If total revenue increases more than total cost.

- If the total income decreases by less than the total cost.

Incremental analysis differs from marginal analysis only in that it analyzes changes in firm
performance for a given managerial decision, whereas marginal analysis is often produced by
changes in output or input.

2. Equi-marginal principle

Marginal Utility is the utility that comes from the additional unit of a commodity that is consumed.
The law of equi-marginal utility states that the consumer reaches the equilibrium stage when the
marginal utility of the various commodities he consumes is the same. According to modern
economists, this law has been formulated in the form of a proportional marginal utility law. This
implies that the consumer will spend his cash income on different goods in such a way that the
marginal utility of each good is directly proportional to the price.
3. The Opportunity Cost Principle

With opportunity cost a decision means the sacrifice of the alternatives required by that decision. If
there is no sacrifice, there is no expense. According to the Opportunity cost principle, a company can
rent a factor of production if and only if the factor is rewarded in the job / job which is equal to or
greater than that opportunity cost. Opportunity cost is the minimum price required to maintain a
factor service in its given use. It is also defined as the alternative cost that is sacrificed. For example,
suppose a person chooses to cancel his current lucrative job offering him IDR 50,000 per month, and
set up his own business.

4. The Principle of Time Perspective

According to this principle, a manager or decision maker must give due emphasis, both to the short-
term and long-term impacts of his decisions, giving appropriate significance for different periods of
time before reaching a decision.

5. Discount Principle

According to this principle, if decisions affect costs and revenues in the long run, all costs and
revenues must be discounted to present value before a valid comparison of alternatives is possible.
This is important because future rupees are not worth today's rupees. Money actually has a time
value. Discount can be defined as a process used to convert future dollars into their current dollar
equivalent

The definition of marginal cost is the decrease or increase in the total costs of an enterprise. Usually,
this happens because there is an additional or subtraction of an additional unit of product

Because it is not in accordance with the marginal principle

Marginal Law

"The added satisfaction one would get from consuming one

the item will become less and less if the person is continually adding

consumption of the goods. "

Or

"When the quantity of a good consumed increases, the marginal utility of the good

it tends to decrease. "