Starting Point: Teaching and Learning Economics > Teaching Methods > Context-Rich Problems > Examples > Marginal Analysis Context-Rich Problem

# Marginal Analysis Context-Rich Problem

This material is replicated on a number of sites as part of the SERC Pedagogic Service Project

#### Summary

In this problem, students consider the benefits of reduced tray usage in school cafeterias by comparing the cost savings of having to clean fewer trays against the opportunity cost of increased labor and energy costs to clean the cafeteria after meals. Students will calculate marginal benefits and marginal costs of reducing trays in the cafeteria, and identify the optimal number of trays reduced.

## Learning Goals

After completing this problem, the student should be able to
1. explain the concepts of marginal benefit, marginal cost, and opportunity cost.
2. describe the appropriate solution using marginal analysis.

## Context for Use

This problem is designed for a principles-level course in microeconomics. It is appropriate for any size class, and can be used as a homework assignment or in-class asssignment for an individual or group. Students should have learned the concepts of opportunity cost, marginal cost and marginal benefit before addressing this particular problem. When done in class, this assignment should only take approximately 10 - 15 minutes to complete, with an additional 5 minutes for discussion of the problem afterward.

## Description and Teaching Materials

The college you attend is considering eliminating the use of trays in the school's cafeteria as a way of reducing energy costs. Advocates indicate that the fewer the number of trays used, the lower will be the costs of cleaning the trays, resulting in savings on water and overall energy usage. Based on an experiment conducted last year in which students were asked to voluntarily reduce their use of trays, the school was able to estimate the annual cost savings associated with varying levels of cooperation, and are given in the table below. In the experiment, however, it became clear that as students used fewer trays, additional help was needed to bus tables and clean them after meal periods were over. Additional labor costs were estimated to be an additional \$20.00 for every tray no longer used. Also, higher energy costs were needed to keep the cafeteria open and lighted to clean it, amounting to \$500 per 100 trays reduced annually.

The Director of Food Service is not sure whether to continue the experiment based on this information, and has asked you to provide input. Write a ½ - 1 page report outlining your determination of the appropriate course of action.

The full text of the problem including the table can be found in the instructions file.

Marginal Analysis Context-Rich Problem Instructions (Microsoft Word 51kB Apr6 09)
Marginal Analysis Context-Rich Problem Excel Solution (Excel 2007 (.xlsx) 9kB Apr6 09)

Marginal Analysis CRP Grading Rubric (Microsoft Word 2007 (.docx) 12kB May28 09)

## Teaching Notes and Tips

Students at this point may not be familiar with the notion of a constant marginal cost curve, so this may need some explanation for students. Also, students should be cautioned to make full use of the information in the problem. In determining a solution, students need to understand that policy solutions are not necessarily all-or-nothing.

## Assessment

In grading this assignment, the instructor should identify whether:
1. students are accurately calculating marginal costs and marginal benefits;
2. students are comparing marginal benefits and marginal costs correctly; and
3. students are offering a definitive solution regarding the number of trays to reduce.

## References and Resources

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