Trade-Off & Opportunity Cost

Trade Off Definition: a giving up of one thing in return for another All of the alternatives that we give up when we choose one course of action over another. Example: Buying a car Trade Off - Money cannot be saved or used to buy other things.

Individual Trade Offs Example: Spending more time on homework studying… Trade Off – Not watching T.V., Talking to friends, playing sports etc.

A CEO decides to lay off workers to save money. Business Trade Off A CEO decides to lay off workers to save money. The desire to make more money is driving the decision…What is the trade off? Another example: Manufacturer who uses all machines to build chairs cannot build tables or desks at the same time as they are building chairs.

Society Trade Offs “Guns or Butter” If a society decides to produce more military goods (guns), it will have fewer resources to produce consumer goods (butter).

Opportunity Cost Definition: The most desirable alternative given up as the result of a decision. Example: For a consumer with a fixed income, the opportunity cost of buying a new dishwasher might be the value of a vacation trip never taken or several suits of clothes that could not be bought. Have students after they take notes create a decision making grid (page 10)

Thinking at the Margin Definition: Deciding whether to do or use one additional unit of some resource. Example: Wake up 1 hour early, get a C; wake up 2 hours early and get a B; 3 hours early and get an A.

Define and give an example of each…Page 153-154 Variable cost Fixed cost Total cost Marginal cost Incentive Wage Salary

LAW OF DIMINISHING RETURNS

What is the Purpose? The Purpose of the Law of Diminishing Returns is to measure how efficient a business is making a product, not necessarily how much of the product they make? Is there a difference between output and efficiency?

Hypothetically???? If I assigned you the task of creating a booklet of information and gave you the following instructions…how many people would be needed to EFFICIENTLY complete the task? You are to take two pieces of paper, each with printed information about the C&E Course, sort them into piles, staple them together and then stack them in a pile.

Law of Diminishing Return Level of production in which the marginal product of labor decreases as the number of workers increase

Marginal Product of Labor - The "marginal product" of labor (MPL) is defined as the change in total product from expanding labor input by one unit while holding capital constant. The "law of diminishing returns" states that adding additional amounts of labor to a fixed amount of capital will eventually reduce labor’s marginal product. What type of Capital are they referring to when they are talking about the law of diminishing returns?

Locate these points on the chart Efficiency Underutilization Maximization of output

Marginal Product of Labor Example Labor (# of Workers) Output Marginal Product of Labor - 1 4 2 10 6 3 17 7 23 5 28 31 32 8 -1

Fixed Costs Do not change regardless of how many goods are produced Fixed interest rate Variable Costs Costs that vary when the amount of products that are produced change Variable interest rates Total Costs Add the variable and fixed together