1. 3. Rational People Think at the Margin AIM: DO NOW: In your notebook write a brief explanation to the best of your ability, of what you think the “AIM” is about

2. Margin = The edge (border) of something. People make choices at the margin, which means that they evaluate the consequences of making small changes in the use of their resources. The benefit from attempting an incremental increase in an activity is its marginal benefit. The cost of attempting an incremental increase in an activity is its marginal cost.

3. UNITED SPROCKET Co. Example: Think of a Margin = The edge (border) of something.

4. UNITED SPROCKET Co. Example: The United Sprocket Company has this much money $1 Million

5. UNITED SPROCKET Co. Example: If they want to make 100 more sprockets per week, it will cost them this much of their money - $10,000

6. UNITED SPROCKET Co. Example: By spending this money, they expect to benefit by making this much money + $15,000

7. UNITED SPROCKET Co. UNITED SPROCKET Co. Example: The cost of pursuing an incremental (small) increase in an activity is its marginal cost. The benefit from pursuing an incremental increase in an activity is its marginal benefit.

8. UNITED SPROCKET Co. UNITED SPROCKET Co. Example: - $10,000 $5,000 $15,000 Marginal Cost When you subtract your cost from your benefit you end up with your Net benefit (Or your Net cost, if you didn’t make enough money) Marginal Benefit Net Benefit