#  Study 5 hours – get B  Study 6 hours – get B +  What is the marginal benefit?  What is the marginal cost?

## Presentation on theme: " Study 5 hours – get B  Study 6 hours – get B +  What is the marginal benefit?  What is the marginal cost?"— Presentation transcript:

 Study 5 hours – get B  Study 6 hours – get B +  What is the marginal benefit?  What is the marginal cost?

 The comparison of marginal (extra or additional) benefits and marginal costs, usually for decision making  Example: The basic package for a brand new car is \$20 000. If you want leather seats, it’d cost you \$22 000. Would you upgrade to leather seats?  What is your marginal benefit?  What is your marginal cost?

 However, in the first example on the first slide, you wouldn’t be able to actually calculate the marginal benefit and compare that to the marginal cost  I would never ask you to calculate the marginal benefit and compare that to the marginal cost on a quiz/test

 Company A is deciding whether to establish a new factory  The cost of that factory is \$20,000. The projected revenue that the factory brings in is \$15,000. Should we go ahead with the decision?  Another employee found out that if you establish the factory in Saskatchewan, the cost will only be \$10, 000. Should we go ahead with the decision?

 On average, 2-3 cars enter the Hemington Park in an hour. The park fee is \$3 per car.  Currently, there is a ticket attendant at the park’s entrance. The wage of that attendant is \$12/hour.  Should the park continue to keep this ticket attendant?

 Marginal Benefit  Additional Benefit  The difference in satisfaction gained between the 1 st choice and the 2 nd choice  Marginal Cost  Additional cost  The difference in cost between the 1 st choice and the 2 nd choice

The utility that could have been gained by choosing an action’s best alternative The value of what you give up Simply put: Your opportunity cost is your trade- off

 Describe some of the tradeoffs faced by: A family deciding whether to buy a new car A member of parliament increasing spending on national parks

 Scarcity forces us to put value on goods and services  Therefore, goods would only go to those that really value it  Therefore, scarcity helps us better utilize resources so that these resources are not wasted

You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. If you decide to go with your friend, what is the true cost of skiing?

 True cost = accounting cost + opportunity cost  In this case, it’d be:  Cost of skiing + salary given up  In this case, it’d be:  In other words: True Cost = Accounting cost + value given up from the next best alternative

 Could the resources used to create your lunch could be used to create something else?  Ultimately, something has to be given up to create this “free lunch” for you – so from the society’s point of view, it’s actually not free

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