Study 5 hours – get B Study 6 hours – get B + What is the marginal benefit? What is the marginal cost?
The comparison of marginal (extra or additional) benefits and marginal costs, usually for decision making Example: The basic package for a brand new car is $20 000. If you want leather seats, it’d cost you $22 000. Would you upgrade to leather seats? What is your marginal benefit? What is your marginal cost?
However, in the first example on the first slide, you wouldn’t be able to actually calculate the marginal benefit and compare that to the marginal cost I would never ask you to calculate the marginal benefit and compare that to the marginal cost on a quiz/test
Company A is deciding whether to establish a new factory The cost of that factory is $20,000. The projected revenue that the factory brings in is $15,000. Should we go ahead with the decision? Another employee found out that if you establish the factory in Saskatchewan, the cost will only be $10, 000. Should we go ahead with the decision?
On average, 2-3 cars enter the Hemington Park in an hour. The park fee is $3 per car. Currently, there is a ticket attendant at the park’s entrance. The wage of that attendant is $12/hour. Should the park continue to keep this ticket attendant?
Marginal Benefit Additional Benefit The difference in satisfaction gained between the 1 st choice and the 2 nd choice Marginal Cost Additional cost The difference in cost between the 1 st choice and the 2 nd choice
The utility that could have been gained by choosing an action’s best alternative The value of what you give up Simply put: Your opportunity cost is your trade- off
Describe some of the tradeoffs faced by: A family deciding whether to buy a new car A member of parliament increasing spending on national parks
Scarcity forces us to put value on goods and services Therefore, goods would only go to those that really value it Therefore, scarcity helps us better utilize resources so that these resources are not wasted
You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. If you decide to go with your friend, what is the true cost of skiing?
True cost = accounting cost + opportunity cost In this case, it’d be: Cost of skiing + salary given up In this case, it’d be: In other words: True Cost = Accounting cost + value given up from the next best alternative
Could the resources used to create your lunch could be used to create something else? Ultimately, something has to be given up to create this “free lunch” for you – so from the society’s point of view, it’s actually not free