Economists consider the next unit when making decisions. For example, suppose I want to eat another bite of spaghetti. I would think, is the benefit greater than the cost? If it benefit is greater, I would take another bite of the Italian pasta.
What if I'm a Logistics manager and I want to start my own distribution center. Let's assume that the costs for delivering the inventory to the retail outlet are 5% higher for me than if I would use the local intermediary. Let's also assume that my total costs would be lower because I would have more efficient delivery, higher visibility over stock, less damage to my inventory, quicker reorder time, and a better handle of changing consumer tastes. So my total costs decrease.
This is what Walmart* found when they centralized their distribution center. They relied on total cost where economics would have told them that the marginal cost was greater than the marginal benefit.
I am going to end now as the sum of the costs of my marginal thoughts outweigh the sum of the marginal benefits.
Nicely put. However what is your 'alternative' concept that is much like a thumbs of rule, if we don't have comparative advantage in a situation but still going with the idea is actually more beneficial in the (arguably) long term if you like? What to do, how to decide? Thanks.
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