Economics · Marginal Analysis

The concepts of Marginal Analysis are central to economic decision-making in both Micro and Macro contexts. Analyze the following statements concerning the application of Marginal Cost (MC) and Marginal Benefit (MB): 1. In Microeconomics, a rational consumer should decide to purchase an additional unit of a good only if the Marginal Utility (MU) derived from that unit is greater than or equal to the Price (P) of that unit, thereby equating the Marginal Benefit to the Marginal Cost at the margin. 2. The Law of Diminishing Marginal Returns is a short-run phenomenon stating that as more units of a variable factor (e.g., Labor) are added to a fixed factor (e.g., Capital), the Marginal Product of the variable factor will eventually decline, directly causing the Marginal Cost (MC) to eventually rise. 3. The Marginal Cost (MC) curve typically intersects the Average Total Cost (ATC) curve and the Average Variable Cost (AVC) curve at their respective minimum points, which is a geometric necessity stemming from the relationship between marginal and average values. 4. In the context of Environmental Economics (a sub-field of Microeconomics), the socially optimal level of pollution occurs when the Marginal Cost of Abatement (reducing pollution) equals the Marginal Benefit of Abatement. 5. In Macroeconomics, the government should continue any specific expenditure project (e.g., building a bridge) only if the Marginal Social Benefit (MSB) of the project is estimated to be greater than or equal to the Marginal Social Cost (MSC) of the project. 6. The Marginal Propensity to Consume (MPC), a key Macroeconomic concept, is defined as the change in aggregate Consumption (C) resulting from a one-unit change in aggregate Disposable Income (Yd), and its value is typically between zero and one (0 < MPC < 1). 7. The decision by the Reserve Bank of India to change the Repo Rate by 25 basis points is a form of Marginal Analysis in Macroeconomics, as it is a small, incremental adjustment designed to test and influence the economy's aggregate responses (Inflation, Investment). Which of the above statements are correct?