In economics and management theories, marginal analysis plays a crucial
role. This is one of the basic approaches in business decision-making.
Let's take paddy rice production as an example. One farmer on one
hectare of land might produce 5 tons of paddy rice by using 6 bags of urea
fertilizer. Holding other inputs such as labor and land fixed, if the farmer
added one more bag of urea, the yield would be 5.5 tons. Economists call
the increase of 500kg in output being the marginal product of the seventh
bag of urea. In general, marginal product is the additional output
produced as an input is increased by one unit (holding other inputs
constant).
Why should the farmer be concerned with marginal product? If he
continually added urea to his one-hectare land, he might produce more
output per extra bag of urea, but at a lower rate. After adding bag number 8,
for example, the additional output may increase only 300kg and if a ninth
bag is added, too much urea poisons the paddy and output may decline. At
that point the marginal product becomes negative. Thus, the marginal
product of urea will eventually diminish as the farmer uses it more and
more.
What happened above is called the law of diminishing marginal product.
It holds not only for fertilizer, but also for other inputs and other production
processes in the economy.
The marginal concept also applies to revenue, profit, cost, and tax rates,
etc. These may follow different rules. Upcoming articles will discuss some
of these concepts.
16. PHÂN TÍCH CẬN BIÊN: TẠI SAO TỪ BÁC NÔNG DÂN
ĐẾN TẤT CẢ MỌI NGƯỜI ĐỀU PHẢI CHÚ Ý
