ECO101H1 Lecture Notes - Lecture 3: Marginal Utility, Opportunity Cost
98
ECO101H1 Full Course Notes
Verified Note
98 documents
Document Summary
Rational agents will act in their own best interests, doing the best they can given constraints: maximization subject to constraint. Economic profit benefit minus the opportunity cost of the resources used to make the choice. Opportunity cost measured by value of the next-best alternative use of the resource. Options 1 & 2, with benefits and costs b1, c2, b2, c2: explicit benefits are the revenue from choosing a particular option, ex. costs are measurable, direct expenses used in pursuing the option. We can re-express this in terms of economic profit. Opportunity costs of pursuing option 1 equals: explicit costs, c1 and implicit costs (foregone accounting profits from not pursuing. Option 1: work at bank for 40 years, earning k/year. Option 2: spend 1. 5 years to get mfe, earn k for 38. 5 years. B1 = k for 38. 5 years, b2 = k for 38. 5 years. Present value of bank earnings is 000.
