MB = MC

I just had this very interesting idea of posting this equation after my junior posted it on facebook: "I've decided to stop drinking coffee in Starbucks as MC > MB."

So what exactly is MB and MC? How can we apply it in everyday context?

Using the Starbucks as the example, Marginal Benefit (MB) is the additional gain in benefit from consuming the very last cup (or the Nth) of coffee. Benefits can arise in the sense of pleasure gained from sitting in a nice environment drinking coffee, prestige earned from drinking in such high class place etc.

Marginal Cost (MC) is the additional cost incurred from consuming the very last cup of coffee. It can represent the opportunity cost of you drinking coffee (what you can do the next best instead of kiao ka drinking coffee). Perharps you realised you have to go home and do your laundry as dirty laundries will deprieved you from wearing them and a stench?

If MC>MB, you will incur a higher cost in drinking coffee. Maybe the laundry is really smelly and the longer/more coffee you drink, the smellier it gets at home? Hence you have to cut back and coffee and go back wash clothes!

Similarly, when MB>MC, you will tend to consume more coffee because drinking more coffee gives you more additional benefits!

So its a powerful equation and you will only consume coffee up to MB = MC. The outcome is economically efficient (allocative efficient) as it is you that decide on how many cups to drink according to your own happiness derived from MB=MC (of yours)

So I have decided to extent this model to myself personnally and allocation of time in school. Taking today for example, I have to wait for 4hrs for my next class; so my MC (i could have sleep at home, study more efficiently at night?! ) of waiting is way higher than my MB(go for class in school - i try not to badmouth the lecturers).

Hence, my outcome is efficient. I cut back my waiting time, go back sleep and blog about this. Im a happy man, having to educate all my readers about a powerful equation! =D