Discussion Question

This week's learning of marginal analysis is fundamental to decision making.To accurately apply this analysis, we need to understand the full range of costs and benefits - tangible and intangible.To make this learning real, analyze a work decision at work where the process did /did not incorporate the concepts of marginal analysis, hidden costs and benefits.Alternatively, you could consider a personal decision you made that you would like to revisit, based on your learning this week.Evaluate your decision process and think about how you would have made the decision based on your learning this week.

Here is another example that you could work through, contrasting economic versus accounting profit and loss, highlighting the importance of opportunity cost in decision making.Include in your discussion, the concepts of economic profit and loss.

Robert Bentley owns and operates the Bentley Clothing Store.A traditional income statement is shown below.There is no outstanding mortgage and the building is fully depreciated.If Bentley could rent the building for $88,000 net per year and could work at another business for an annual salary of $130,000, what is the economic Profit/Loss?

Accounting Income Statement

Net Sales

$650,000

Less Cost of Goods Sold

($250,000)

Gross Profit

$400,000

Less Expenses

Salary

$150,000

Advertising

$30,000

Utilities & Maintenance

$20,000

Miscellaneous

$10,000

Total

($201,000)

Net Profit before Tax

$190,000