You are working as an analyst for a service industry firm

You are working as an analyst for a service industry firm (e.g., hospital, financial consulting/bank, marketing, research, and development…etc.) where employees have multiple tasks, unlike their counterparts in manufacturing. For example, an assembly line worker has a specific task all day while a nurse has multiple tasks during a given day. You like to know the marginal cost of doing business and whether it is rising and eating into profitability or marginal cost is falling and adding to profit margin.

This task is difficult since it is not practical to measure each activity that an employee performs and the resource cost associated with it. However, you have data for total cost and total revenue (total revenue is Price x Quantity. It can be used as a proxy for the output of the business – for example, in the case of hospital services, the total revenue generated providing patient care).

Educate yourself on the relation between Average and Marginal values in general (e.g., what happens to the average grade for the class if a new student – marginal – is added to the class with above-average grade OR what happens to the average weight of an exercise group, when a new member joins the group with a lower weight). Use this principle to explain if the only data you have available are total costs and total revenue to determine if the firm is profitable or losing money.

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