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Salt Lake Community College

Future Marginal Costs and Benefits of Creating a Quasi/Hybrid-Public


Good
ECON 2010 Term Paper Summer 2016

Breezell Miller
Principles of Microeconomics ECON 2010
Professor Dennis Wilson
Saturday, August 6, 2016

Introduction
Time spent studying in economics, and experiencing in life, has taught me that one decision an
individual makes can have domino effects/consequences on related decisions made in the future. For
example, the choice I made to disregard common stereotypes and the circumstances of my life when I was
a freshman in high school had positive repercussions on my school work- which eventually led to getting
into University paid for. Just as in the future decision I will outline in this essay, that decision I made as a
Freshman had some marginal costs and benefits associated with it.
For the purpose of this essay, it is necessary to outline some important key terms and their
definitions. First, marginal cost (MC) is the additional cost necessary to generate another product. Also,
marginal benefit (MB) is the added benefit of consuming another product. Lastly, and importantly, the
relation of the two- MC and MB- is called cost-benefit analysis (CBA). CBA helps the person analyzing
the relationship between MC and MB decide on if they want to help society by proving a specific public
good, and it helps them understand how much they should provide- if they choose to provide the good.
Now, these terms are relevant for the future- for my future. One day I plan to create a nonprofit/for-profit hybrid organization. Another way to phrase this is: quasi-public good. The catch is, I
would like to fund this nonprofit organization with my own income.
If I choose to go through with this venture, then I have many decisions I am going to need to
consider. Initially, I must ask myself whether or not this decision is a sound one to invest in. I need to
figure out whether or not I plan to do this alone. I need to figure out how to create a nonprofit
organization. Also, I need to decide on how I plan to fund it. This means I will need to figure out which
decisions are going to lead me to the proper source of monetary income. CBA will help me to find out if I
will ever have what is necessary to bring this public good to society; to find out how much the service
will cost; the benefit to the consumers; and whether or not the benefit it creates outweighs the cost of

creating it. Lastly, itll help to compare the possible projects and products this nonprofit organization will
undertake.
Steps to Decision
Peter Frumkin (2003) discussed in his piece the concept of transitioning from traditional
philanthropy to venture philanthropy. The idea was to help philanthropists become more innovative and
investigative as they made decisions on whom they were to give their money to. Along with Frumkin,

Letts, Ryan, and Grossman (1997) wrote a piece on some concepts that foundations (and
therefore, the philanthropists running them) could learn from the business sector. Also, Rob
Reich (2005) had a few choice words to say about the many ways that philanthropy has failed the
core understanding of charity- pointing out that philanthropists donate for their own personal
gain (or only for the gain of the people they love. I agree with all these authors, but I believe that
it is necessary to go a few steps further. Nonprofit organizations could learn the exact same
things. Looking to the business sector for advice on how to run an organization is absolutely
necessary, because nonprofit organizations and business firms are almost essentially the same.
The only difference is that one gains tremendous monetary amounts from the services it
provides.
Before I continue, I dont believe that there is anything wrong with philanthropists
donating with their own gain in mind. I think its incredibly appropriate because in that way
these persons are using CBA to ensure that they are making the right decision. In fact, Reich
(2005) points out that charity is, the kindly and sympathetic disposition to aid the needy or
suffering and that the main reason people give is for the incentives- and that people abuse them.
I agree to some extent, but I do believe that those philanthropists are on to something.

I plan to go on to a graduate school of some kind, and with the degree I earn I plan to
start a career that makes a pretty decent income. With that income I plan to start the nonprofit.
This nonprofit, which should generate some marginal benefit to society is going to have some
monetary and marginal cost to me as an individual. I dont want the MCs to stop me from doing
any of these things. So, to some degree I will be reaping a MB of the tax incentives that I will
receive. Looking at Rob Reichs (2005) argument though a venture and CBA lens, I dont
believe that is wrong to attempt to add a MB to society and to myself.
Moving forward, in order to best ascertain whether or not my nonprofit will have MC <
MB or even MC = MB to society, I must outline its structure and identity the alternatives to the
program to see whether or not it beats out the other options. This nonprofit will service the
homeless community, and will provide: basic emergency services, as well as communication
services to this section of society. The alternatives include Salt Lake Rescue Mission, and, as
another comparison, Union Rescue Mission in Los Angeles. However, Union Rescue Mission is
too far away location-wise to provide similar benefits to the community in Salt Lake, if Utah is
indeed where I choose to stay. Salt Lake Rescue Mission does have basic emergency services
that a limited number of consumers may consume by entering its location. This is inefficient,
because many persons of need will not be able to access these resources. The organization I am
proposing will not have a specific location, and the services provided will be mobile. So, this is
the best option.
Next, considering stakeholders. I will be the primary entrepreneur of the organization,
and the homeless community will hold a set of stake in its services. The organization will grow
with stakeholders as time passes and growth becomes possible. Any donators will also hold
stake. As a measurement, for the purpose of this essay, I plan to become a lawyer with an income

of 120k/year. The average individual only needs roughly 30k to live a modest life. So, that leaves
90k that would go to the products of the nonprofit. As there will not be a building, and there will
not be workers to pay, 100% of donations would proceed to the public for a MB= 100%, not
including the MB I receive in tax incentives. The MC to me would = 75%, and so MB > MC.
Results of Decision, Analysis and Discussion, and Conclusion
Based on my basic calculations and the utilization of CBA, I believe that it would be safe to
create this organization. I imagine that my decision to attribute 75% of my future income garnered the
same response as the participators in Stroms (2010) coverage of the Giving Pledge that some of the
wealthiest philanthropic families made. Even so, I find that this decision is necessary in the same way that
risk for a start-up is necessary.
As I mentioned in the introduction, there are still plenty of decisions that I must make in regards
to whether or not I should continue with this idea. CBA did help me to determine whether or not the MB
was worth the MC to me, and because I make this decision based on my own level of success; I would
say that is will be worth it one day. After all, with time, the MC to me will decrease as donations increase,
as production increases more efficiently, and as expansions to programs and services provided attract
more consumers.
It is interesting, though, what Allison Gauss (2015) mentions in her article, Why we love to hate
nonprofits. She comments that statistically nonprofits have a harder time with money and serving the
public than they initially set out to, because of public response to how nonprofits are run. Statistically,
people think that the managers and supervisors of nonprofit organizations are somehow less competent at
their jobs than their business sector counterparts specifically because they work in nonprofits. I say it
takes more courage and strategy because money doesnt roll in for product the same way. So, I embark on
this daunting challenge to prove those statistics wrong, and I am doing so in the same way a business
student counter-part would be: though venture capital decisions and innovation.

References:
Frumkin, P. (2003). Inside Venture Philanthropy. Society.
Gauss, A. (2015). Why we love to hate nonprofits. Stanford Social Innovation Review.
Letts, C., Ryan, W., and Grossman, A. (1997) Virtuous Capital What Foundations Can Learn
from Venture Capitalists. Harvard Business Review.
Reich, R. (2005). A Failure of Philanthropy. Stanford Social Innovation Review.
Strom, S. (2010). Pledge to give away fortunes stirs debate. The New York Times.