In economics and business, the term sub-marginal refers to entities—such as firms, assets, or resources—that are unable to generate the minimum level of profit or production necessary to sustain their operations over the long term. These entities are considered economically unviable because they do not meet the marginal conditions required for profitability and sustainability.
Economic Viability and Sub-Marginality
Marginal Analysis
Marginal analysis is a key concept in economics used to determine the point at which production or operations are economically viable:
- Marginal Cost (MC): The cost of producing one additional unit of a good or service.
- Marginal Revenue (MR): The revenue derived from selling one additional unit of a good or service.
An entity is sustainable if:
Sub-marginal entities fail to meet this condition, resulting in a scenario where:
Sub-Marginal Firms
Sub-marginal firms are businesses that cannot cover their variable costs with their sales revenue. Over time, these firms will either have to cease operations or find ways to reduce costs or increase revenue to become marginally profitable.
Sub-Marginal Land
In the context of agriculture or resource extraction, sub-marginal land refers to land that does not generate enough revenue to cover its operating costs. Such land is often left uncultivated or used for less intensive purposes.
Historical Context
The concept of sub-marginality has its roots in classical economics:
- David Ricardo: Introduced the idea of economic rent and marginal land in the context of agricultural production.
- Karl Marx: Discussed how sub-marginality could lead to the devaluation of labor and capital.
Applications and Examples
Agriculture
Farmers may classify parts of their land as sub-marginal if the crop yield is insufficient to justify the costs of planting, tending, and harvesting.
Real Estate
In real estate, an asset might be sub-marginal if the rental income does not cover mortgage payments, maintenance, and other expenses. Such properties might be sold, repurposed, or abandoned.
Industry
In industrial contexts, factories that cannot produce goods at a cost lower than the market price for a sustained period are sub-marginal. They may need to innovate, reduce costs, or cease operations.
Comparing Marginal and Sub-Marginal
| Criterion | Marginal Entity | Sub-Marginal Entity |
|---|---|---|
| Profitability | Profitable at equilibrium | Not profitable |
| Sustainability | Long-term viable | Unsustainable |
| Production Costs | Equal to or less than revenue | Greater than revenue |
| Market Position | Competitive or break-even | Uncompetitive, loss-making |
Related Terms
- Economic Viability: The ability of an entity to sustain its operations and generate profit over the long term.
- Break-Even Point: The point at which total revenue equals total costs.
- Economies of Scale: Cost advantages that enterprises obtain due to their scale of operation.
- Marginal Utility: The additional satisfaction gained from consuming one more unit of a good or service.
FAQs
What happens to sub-marginal entities in the long run?
Can a sub-marginal entity become marginally profitable?
References
- Ricardo, David. Principles of Political Economy and Taxation. 1817.
- Marx, Karl. Capital: Critique of Political Economy. 1867.
- Samuelson, Paul A., & Nordhaus, William D. Economics. McGraw-Hill, 2009.
Summary
Sub-marginal entities are those that fail to meet the minimum profitability and production levels required for sustainability. They are prevalent across various sectors, from agriculture to industry, and pose significant challenges to economic viability. Understanding sub-marginality is crucial for identifying inefficiencies and making informed decisions to turn around or phase out unprofitable operations.
