# Opportunity Cost - PowerPoint PPT Presentation

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Opportunity Cost. Chapter 1.3. Warm-Up. In this clip from the movie, Along Came Polly , what does Reuben (Ben Stiller) lose by putting on and taking off his pillows every morning and evening?. Reading Quiz 1.3. Define Opportunity Cost True or False: opportunity cost varies

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Opportunity Cost

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## Opportunity Cost

Chapter 1.3

### Warm-Up

In this clip from the movie, Along Came Polly, what does Reuben (Ben Stiller) lose by putting on and taking off his pillows every morning and evening?

• Define Opportunity Cost

• True or False: opportunity cost varies

• What is sunk cost?

• List one opportunity cost of going to college.

### Opportunity Cost

• The Opportunity Cost of the chosen item or activity is the value of the best alternative you must pass up.

• We ALWAYS choose what we do or buy because it is the most preferable at the time.

• Simulation

### Estimate Opportunity Cost

Opportunity cost is an estimate: we never really know the real value of next best alternative, only what is expected.

### Opportunity Cost Varies

Opportunity cost depends on the value of the alternatives!

### Do we REALLY calculate O.C.?

We estimate the opportunity cost based on rational self-interest. We don’t necessarily calculate value of all possible alternatives.

Information may be limited/faulty

Decisions may lead to lost opportunities and regret

OR

### Sunk Cost

Sunk Cost: a PAST cost that you have already acquired and cannot recover

Sunk costs must be ignored when making economic decisions

“No point in crying over spilled milk”