Courseworks Essay Samples on Microeconomics
Some of the highly significant facets to economists include laws that diminish marginal utility and returns. This is due to the fact these laws are known to affect production of services and goods. For example, diminishing returns law affects a company’s capacity to cut expenses through mass production. Additionally, law of marginal utility is vital to economists as it aids in determining the percentage of an item consumed by a client. This proves the two laws as mentioned before are of great importance to economists as such, they should not be disregarded at any point. The purpose of this paper is to discuss law of diminishing returns and that of marginal utility through use of the HP Company as the example.
Law of diminishing returns states increasing amount of any single aspect of production while other factors of production remain constant at some point decreases the returns per unit. This law is also known as law of diminishing marginal utility. The term, economies of scale is applied in macroeconomics for purposes of referring to cost advantage a firm obtains as a result of its size. This means the cost per output unit decreases as the output increases. This occurs due to the fact the fixed costs incurred by a firm are spread out over increased units output. Additionally, increase in a firms scale also leads to increase of operational efficiency which in turn leads to low variable costs.
Organizations often use many techniques for purposes of achieving economies of scale. Among the most crucial techniques an organization uses is globalization in which case, a company expands operations to international platform. This is attributed to the fact that globalization maximizes on efficiency through cutting down on transport and production costs. It is worth noting that services outsourcing is another technique organizations use in order to maximize on economies of scale. Services of outsourcing occur in departments like human resource, IT (departments requiring less technical skills and accounting.
Over the duration of the last 5 years, HP has been in the production of electronics and selling the same to consumers. How has the company utilized economies of scale? First, it the company appreciates the fact that globalization is the most efficient strategy for maximization of their economies of scale. The cost of globalization, initially did not improve HP’s financial status, however, this changed over time. HP’s globalization realized the benefits of economies of scale in the long run rather than the short term. HP also outsources accounting and human resource for purposes of reducing expenses for wages and salary. It is clear services outsourcing has an economic impact that is short term to an organization as it aids in reduction of the monthly expenses incurred by an organization.
The Law of Marginal Utility
To start with, utility, in economics is defined as the level of meeting personal satisfaction from services and goods. As such, marginal utility law implies that value of services or goods reduces when it is consumed several times. For instance, drinking a cup of coffee early during the morning leads to great satisfaction. It is important to point out diminishing marginal utility needs has requirement for additional good or service consumed and creates a reduction in the level of additional utility. As such, the second cup of coffee (in the morning) does not match to level of satisfaction resulting from the first cup. This examples helps reveal that marginal utility law asserts that with the increased consumption of a good, the desire for it decreases.
Though marginal utility law leads to satisfaction reduction with increase consumption of a given good, there are times when the law is not applicable. The best example to illustrate this is the argument on clothing. Take for example the instance where person A does not have clothing. Buying a dress for A creates a certain satisfaction level. However, they will still need additional clothing despite the fact they already have a dress. It is clear that in this case, utility increases thus defying marginal utility law. However, if A purchases additional clothes, there comes a point when they no longer get satisfaction from buying clothes. This aspect affects how people spend money when buying different kinds of products. It is highly likely for people to spend less when buying goods like coffee and more on goods such as clothing.
To conclude, this paper has discussed law of diminishing returns and marginal utility. Law of diminishing returns asserts increase in the magnitude of a single factor of production while other factors remain constant decreases returns per unit. It is clear that HP has used the aspect of globalization and that of outsourcing services to maximize on the economies of scale. However, on the contrary, law of marginal utility clearly states the value of services or goods will decrease inevitably when it is consumed in high amounts. However, there are some goods that are known to defy this law and a good example of such goods is clothing.