How does marginal economics factor into the given changes
Managerial Economics
From Lesson 1, we learned about marginal production economics and cost behaviors. As we move into Lesson 5, we will be adding the issues surrounding capital additions to production capacity and returns on investment. Both of these concept areas are vital to management decisions about production rates and adding new capacity. To maximize profits and return on capital, all businesses conduct economic evaluations daily to adjust production to meet demand and price in the marketplace. The interplay of demand and supply is the reason that prices fluctuate over time. To integrate these ideas and the operating management tactics that ensue, we will be using the world oil marketplace as our case study for the next two weeks of discussion.
There can be no better area to illustrate these concepts than the world oil markets. As you know, crude oil prices were once over $100 per barrel. Now, they have declined into the $30’s per barrel due to price cutting, increased supply and demand worries. How does “marginal economics” factor into these changes? What are the motivations of the different suppliers as prices change? Do some research on this area and post your ideas, conclusions, and outlook for oil prices.
