We (Alex, Jenna, Mary and Will) are the Blue Team covering chapters three, four and five. Our article review of chapter 3 illustrates how the equimarginal principle brings technological change supporting efficiency in biofuel production due to a supply response and decrease in marginal cost. Our article review of chapter 4 shows the difference between equity and social efficiency as we explored external costs arising from unwillingness to pay for farming methods alternative to pesticide use. Our article review of chapter 5 uses the marginal damage function to understand pollution in the Baltic Sea as it pertains to the cod fisheries. The information from the articles prompted our interest to dive deeper into referenced topics and consider potential policy change resulting from the research. We assessed all three articles as valid applications of the concepts and are curious to see our facilitation spark analysis from the rest of the class.
2. Consider the marginal cost curve associated with cleaning your dorm room. Label the vertical axis “time” and the horizontal axis “percent clean.” What would this marginal cost curve look like? (Field and Field 2017, 69)
The marginal cost curve determines the degree to which a certain input is efficient in terms of output produced. The efficiency is measured via the graph’s slope. I labeled the vertical axis as minutes and the horizontal axis as percent clean. The slope is the ratio of time to percent clean. With the given set of axes, a low slope value equates to a low marginal cost.
With a cost beneficial to producing output as well as no technological change, there is a constant, directly positive relationship between input and output. For example, in the case the cost of 1 minute results in 5% of the room clean, then every incremental minute sacrificed leads to a 5% output. The coordinates over the course of 10 minutes are (5,1), (10,2), (15,3), (20,4), (25,5), (30,6), (35,7), (40,8), (45,9), (50,10). The line travels diagonally, starting at (0,0) in the graph’s bottom left corner and ending in the graph’s top right corner. That being said, there is no change in slope because there is no change in efficiency. So far, I spent 10 minutes to clean 50% of the room. The slope is 1/5. Suppose, I look out the window to see my friends using time to play basketball. The opportunity cost flashed before my eyes. Time is a resource which could have been devoted to any alternative activity instead of cleaning the room.
All of the sudden, Matthew walked by saying all people from my dorm hall already applied the equimarginal principle to improve efficiency. The first week of the semester, everybody gathered all dorm room cleaning supplies they brought to campus and put them in the closet at the end of the hall. They also ran tests to determine efficiency of all supplies and which resident is the fastest cleaner. The broom and pale were determined to be relatively more efficient tools than the paintbrush and paper plate. So, Matthew gave me the broom and pale, watched me sweep for 4 minutes, and laughed. With the new technical supplies, it took me one minute to clean 7% of the room. The marginal cost curve’s slope decreased to 1/7. Consequentially, the next four coordinates on the graph resulted in being (57,11), (64, 12), (71, 13), and (77,14). Matthew saw I still needed to clean 23% of the room, told me the hall mates determined him as the fastest cleaner, and insisted on cleaning the rest of my room. Exchanging one person who is a slow cleaner with a friend who is a fast cleaner impacted the slope. The slope from minute 14 to 15 was 1/23 because it took Michael one minute to finish the job. The last coordinate ended up being (100,15). As Ashley mentioned, the varying technical and human capability in the production process is the underlying factor resulting in the marginal cost curve’s shape change. Both technological changes increased output at a lower marginal cost.
Reply by Catherine Lwowski:
Ashley, Mary, All,
Mary you mentioned opportunity costs when it comes to time. The marginal cost of cleaning the dorm room includes the opportunity cost to your time. The more time you continue cleaning your room, the less time you have available for other things, like hanging out with your friends. As additional time is added to cleaning your dorm room, the alternative opportunities you have outside of cleaning are more than likely going to increase in value (the desire to do other things rather than clean is real). This subsequently raises the opportunity cost to cleaning the dorm room, making the time you spend cleaning more costly to you. Also, once you have reached a level of percent clean that then requires you thereafter to dedicate more time to smaller details of cleaning, i.e. wiping every crevasse of every surface in the room, your time will increase while percent clean will begin to plateau. You are less likely to be willing to pay for the detailed cleaning than you are to say vacuum or sweep. The additional unit of benefit of having small crevasses in your room clean is not enough to sacrifice more time to cleaning. To clean your dorm room to an optimal level, you should evaluate the percent clean (marginal benefit) to a level that is equal to the marginal cost of removing it. This will lead to a net benefit to you. Once the marginal cost of cleaning the dorm room exceeds the marginal benefit, further reducing the amount of uncleanliness will actually make you worse off (in regards to your opportunity costs).
Hubbard, R. G., Garnett, A. M., Lewis, P., & O’Brien, A. P. (2018). Microeconomics (p. 454). Melbourne, VIC, Victoria: Pearson Australia.
While time is objectively quantifiable, how do we define 100% clean? How do we even define 50% clean? This is an example of a unit being numerical and still difficult to measure. Defining percent clean is crucial in determining which technological change to implement. In turn, the technological change then impacts marginal cost. For example, I would not be willing to pay for the vacuum if dust on the floor is not a significant element impacting the “percent clean” value. If clothes on the floor just need to be folded inside the dresser for a room to reach 100% clean, then I would not be willing to devote time to taking clothes to the laundry mat. That being said, I learned it is crucial for a company to clearly understand its output vision before investing in technological change.