ECONOMICS
OPPORTUNITY COST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Decision made at the “margin” of an activity to do a bit more or a bit less of an activity.
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Type of cost-benefit decision making that compares extra benefits to extra costs of an action.
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Either A or B
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None of the above
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Detailed explanation-1: -Marginal decision-making means considering a little more or a little less than what we already have. We decide by using marginal analysis, which means comparing the costs and benefits of a little more or a little less.
Detailed explanation-2: -Economists argue that most choices are made “at the margin". The margin is the current level of an activity. Think of it as the edge from which a choice is to be made. A choice at the margin is a decision to do a little more or a little less of something.
Detailed explanation-3: -The theory of marginal analysis states that whenever marginal benefit exceeds marginal cost, a manager should increase activity to reach the highest net benefit. Similarly, if marginal cost is higher than marginal benefit, activity should be decreased.
Detailed explanation-4: -Standard 2: Marginal Decision Making Most choices involve doing a little more or a little less of something: few choices are “all or nothing” decisions. Few choices are all-or-nothing decisions; they usually involve getting a little more or one thing by giving up a little of something else.
Detailed explanation-5: -Marginal costing is a very valuable decision-making technique. It helps management to set prices, compare alternative production methods, set production activity levels, close production lines and choose which of a range of potential products to manufacture.