ECON 103 Chapter Notes - Chapter 7: Sunk Costs, Transaction Cost, Marginal Cost
12 May 2016
School
Department
Course
Professor
Document Summary
Chapter 7 readings: 7. 1 what is cost? (page 160) Opportunity cost: the value of the highest forsaken alternative. Opportunity cost always refers to an action: if there"s no action or choice taken, then there can be no cost, 7. 2 adding up costs (page 161, 7. 3 costs and bads (page 162) Every decision comes along with good things and bad things. The bad things, however are not the costs of the decision unless they influence the value of the next best alternative: 7. 4 sunk, avoidable, fixed, and variable costs (page 163) Transaction costs are costs that arise when individuals try to cheat one another in an exchange. Shop lifting is a transaction cost, but so are the extra wages paid for shirking workers. Avoidable costs: opportunity costs that are not sunk, they can be recovered or avoided. People base their decisions on avoidable costs, not sunk costs. Sunk costs are costs that once incurred, cannot be recovered.
