ECONOMICS
OPPORTUNITY COST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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He should compare the total benefit of 5 hours of studying for AP Microeconomics to the total benefit of 5 hours of studying for AP US History.
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He should compare the marginal benefit of 1 more hour studying for AP Microeconomics to the marginal benefit of 1 more hour of studying for AP US History.
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He should compare the total benefit of 9 hours of studying for AP Microeconomics to the total benefit of 9 hours of studying for AP US History.
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None of the above
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Detailed explanation-1: -The marginal benefit/cost is the benefit/cost of each additional unit of a good. Using the pizza example, the first piece may have given me 8 utils, whereas the second gave me 3, the third 2, and so on. These marginal benefits add to the total benefit. Similarly, the each additional slice may cost me $4 more dollars.
Detailed explanation-2: -In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives.
Detailed explanation-3: -Marginal analysis assumes that rational decisions are made when the additional benefits resulting from a decision exceed the marginal cost of that decision. In this context, firms use marginal revenue and marginal cost to determine their output and pricing decisions.
Detailed explanation-4: -We can calculate the marginal net benefit of a decision by subtracting marginal cost from marginal benefit. Marginal net benefit of the first drink is $13 ($20 – $7), the 2nd is $5 ($12 – $7), and the third is-$1 ($6 – $7). As long as the marginal net benefit is positive, we should increase our activity!