Salvador grows orchids to sell to local florists. When Salvador began raising his current crop of 1,000 orchids, he could sell them for $20 per plant, and he incurred shipping costs of $3 per plant. His cost of raising orchids is $8 per plant

When his crop was ready to ship, florists were only paying $9 per plant. Use marginal analysis to determine Salvador's best course of action given the drop in the price of orchids.

When Salvador began raising his current crop of orchids, he expected to earn revenue of $20,000 and incur costs of $8,000 for raising the plants and an additional $3,000 for shipping, leaving him with a net (marginal) benefit of $9,000. With the drop in price, his revenue will be $9,000 and his costs will be $11,000, leaving him with a loss of $2,000. Although it may seem as though the best option for Salvador is to not sell his orchids at this lower price, the $8,000 cost of raising the orchids has already been incurred, so if he chooses to not sell the orchids, he will lose $8,000. If he chooses to sell his orchids, his net loss will only be $2,000. So by selling the orchids, Salvador's marginal benefit is $9,000 and his marginal cost is the $3,000 shipping expense. His best course of action is to sell the orchids, even at the lower price.