ECO100Y1 Lecture Notes - Sunk Costs, Marginal Cost, Marginal Utility
Document Summary
You decide to go out for dinner which costs . Your next best alternative is to attend a concert, which you value at . The cost of a ticket to the concert is : what is the opportunity cost of going out to dinner, , , , , none of the above. What is the opportunity cost if you value the dinner at : , , , , none of the above. Less: direct cost of next best alternative: (50) Observation: the value that you assign to the dinner is irrelevant to its opportunity cost. Undertake activity if marginal (additional) benefit exceeds marginal (additional) cost. Ignore sunk costs: ( fixed costs ) costs which are incurred whether or not action is taken: only relevant costs are those which can be avoided if action is not taken. Lease payment: per month per day. Conclusion: - = profitable to stay open, fixed (sunk) cost of lease is not relevant.
