ECO101H1 Lecture Notes - Lecture 2: Sunk Costs, Opportunity Cost, Marginal Cost
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The opportunity cost of an action is what you forgo (give up) by not taking the best alternative action. If the opportunity cost of taking an action is high, you are less likely to take the action. Action taken (direct costs; each dollar spent has oc of one dollar) + next best alternative (dollar amount or value assigned by you) Undertake activity if marginal (additional) benefit exceeds marginal (additional) cost. Only relevant costs are those which can be avoided if action is not taken. Sunk costs: costs which are incurred whether or not action is taken. Marginal benefit of attending a concert: (both jack and jill) Jack buys one week in advance, jill plans to buy on day of the concert. The subway breaks down on the day of the concert, and jack & jill both face an unexpected cost: for a taxi.
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