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How do you calculate the total opportunity cost?
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Total Opportunity Cost = Explicit Costs + Implicit Costs
What does the acronym TANSTAAFL stand for?
There Ain't No Such Thing As A Free Lunch.
What is the definition of opportunity cost?
Value of the next best alternative not chosen.
Provide an example where the net benefit of a decision is negative.
Getting a haircut that costs $20 but provides a benefit of only $15 results in a negative net benefit of -$5.
What is the principle of rational decision making in cost-benefit analysis?
Rational decision making involves acting when Total Benefits exceed Total Costs, resulting in a positive net benefit.
What does a point on the Production Possibilities Curve (PPC) represent?
A combination of two goods that can be produced with available resources.
Provide an example where the net benefit of a decision is positive.
Building a park with a cost of $1 million and a benefit of $1.5 million results in a positive net benefit of $0.5 million.
What is the main difference between explicit and implicit costs?
Explicit costs involve direct monetary payment while implicit costs are lost earnings or the value of other opportunities.
What are non-relevant costs?
Costs that are either not paid directly or incurred regardless of the choice.
Why is the retail value of a ticket not a relevant cost if it is discounted?
Because it is not the cost actually paid.
List an example of an explicit cost when going to a movie.
Movie ticket or popcorn cost.
List an example of an implicit cost when going to a movie.
Lost wages that could have been earned while working.
Calculate the opportunity cost if Peggy Smith goes to college with tuition and fees amounting to $4,600 and lost wages of $12,000.
$16,600 annually.
How is opportunity cost illustrated on the Production Possibilities Curve (PPC)?
It is the loss of one type of good when production is shifted to produce more of another good.
Explain the concept of cost-benefit analysis.
It compares the total cost (opportunity cost) and total benefit (enhancement to well-being) to determine the total net benefit.
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