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?. 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

Opportunity Cost

Chapter 1.3


Warm up

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

Reading Quiz 1.3

  • Define Opportunity Cost

  • True or False: opportunity cost varies

  • What is sunk cost?

  • List one opportunity cost of going to college.


Opportunity cost class notes right

Opportunity CostClass notes (right)


Opportunity cost1

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

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 Varies

Opportunity cost depends on the value of the alternatives!


Do we really calculate o c

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


Time scarce

Time = Scarce

OR


Sunk cost

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”


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