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Lecture

# ECO100Y1 Lecture Notes - Sunk Costs, Marginal Cost, Marginal Utility

Department
Economics
Course Code
ECO100Y1
Professor
James Pesando

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ECO100: LECTURE #2
14/09/11
OPPORTUNITY COST REVIEW:
You decide to go out for dinner which costs \$100. You value the dinner at \$200.
Your next best alternative is to attend a concert, which you value at \$75. The cost of a ticket to the concert is \$50.
1. What is the opportunity cost of going out to dinner?
a) \$25
b) \$50
c) \$75
d) \$125
e) none of the above
2. What is the opportunity cost if you value the dinner at \$400?
a) \$25
b) \$50
c) \$75
d) \$125
e) none of the above
Action taken: \$100 (direct cost)
Next best alternative: 75
Less: Direct cost of next best alternative: (50)
\$125 (for both questions)
Observation: the value that you assign to the dinner is irrelevant to its opportunity cost.
RATIONAL DECISION MAKING