# ECO101H1 Lecture 2: Lecture 2-The Economic Way of Thinking

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1 Aug 2010
School
Department
Course
Professor
The Economic Way of Thinking
Rational Decision Making
Undertake activity if marginal (additional) benefit exceeds marginal
Insights:
1. Include all opportunity costs
2. Ignore sunk costs
Examples
A. Restaurant: Should It Stay Open for Lunch?
Lease Payment: \$12,000 per month Ù \$400 per day
Dinner: 150 meals
Lunch: 25 meals
25 meals at \$20 = \$500
Chef: 3 hours at \$30 = \$90
Waiters (2): 6 hours at \$10 = \$60
Food: 25 meals at \$5 = \$125
____
\$275
Conclusion: 1) \$500-\$275= \$225 Æ profitable to stay open
2) Fixed (sunk) cost of lease is not relevant
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Lease Payment: \$12,000 per month Ù \$400 per day
Dinner: 150 meals
Lunch: 8 meals
8 meals at \$20 = \$160
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