If the marginal propensity to consume is 0.80, what is the total implied increase in economic spending activity from a government stimulus of $100 billion?

Is known :

ΔTC = $ 800 million (yield of $ 100.8 billion - $ 100 billion)

ΔQ =?

Information:

MC = Marginal Fee

ΔTC = Change in Total Costs

ΔQ = Change in Amount of Output

ΔQ = ΔTC * MC

ΔQ = $ 800 million * 0.80

ΔQ = 640 million units

Marginal Costs are additional costs incurred when producing one additional product unit. This Marginal Cost shows the level at which the total cost of product changes when production increases by one unit. The purpose of analyzing these marginal costs is to determine at what point a company can achieve economies of scale.

Marginal costs are very important in the business decision-making process where management must make decisions about the allocation of resources in the production process. For example, when management needs to decide whether or not to increase production, they must compare marginal costs with marginal revenue that will be realized by additional units of output. This comparison is needed to determine whether the company will add the number of production units.

It should be noted that for most production scenarios, production costs are not at the beginning of production and then decrease with increasing amounts of certain products.

Learn more

marginal cost

business decision-making

Details

Class: high school

Subject: Business

Keywords: cost, marginal, business