MGEB01H3 Chapter Notes - Chapter 1: Sunk Costs, Reservation Price, Marginal Utility

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Microeconomics is the study of how people choose under condiions of scarcity. The cost-beneit approach to decisions come in the form of: should i do acivity x, if b (x) > c (x), then do x, if b (x) < c (x), then don"t do x. B (x) is deined as the maximum dollar you are wiling to pay to do acivity x. C (x) is the value of the resources you must give up in order to do acivity x. Reservaion price of acivity x is the price at which a person would be indiferent between doing x and not doing x. There are pifalls in decision-making: ignoring implicit costs. A sunk cost is the cost that can no longer be recovered at the ime of making a decision: measuring costs and beneits as proporions rather than as absolute dollar amounts, failure to understand the average-marginal disincion.

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