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Trade-Off & Opportunity Cost

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.

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Trade-Off & Opportunity Cost

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  1. Trade-Off & Opportunity Cost

  2. 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.

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

  4. 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?

  5. 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).

  6. Opportunity Cost • Definition: The most desirable alternative given up as the result of a decision. Example: For a consumer with a fixed income, the opportunitycost 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.

  7. 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.

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

  9. LAW OF DIMINISHING RETURNS

  10. 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?

  11. 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.

  12. Law of Diminishing Return • Level of production in which the marginal product of labor decreases as the number of workersincrease

  13. 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.

  14. Locate these points on the chart • Efficiency • Underutilization • Maximization of output

  15. Example

  16. 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

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