# Trade-Off _ Opportunity Cost by pptfiles

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```									   Trade-Off
&
Opportunity Cost

• 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.

other things.
• Example: Spending more
time on homework studying…

• Trade Off – Not watching
T.V., Talking to friends,
playing sports etc.

A CEO decides
to lay off
workers to save
money.

The desire to
make more
money is driving
the
decision…What

• “Guns or Butter”

• If a society decides
to produce more
military goods
(guns), it will have
fewer resources to
produce consumer
goods (butter).
Opportunity Cost

• Definition: The most desirable alternative given up
as the result of a decision.

Example: For a consumer with a fixed income, the
opportunity cost 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.
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.
Define and give an
example of each…Page
• Variable cost
153-154
• Fixed cost

• Total cost

• Marginal cost

• Incentive

• Wage

• Salary
LAW OF DIMINISHING
RETURNS
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?
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

   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.
 Law of Diminishing Return

 Level of production in which the
marginal product of labor
decreases as the number of
workers increase
 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"
amounts of labor to a fixed amount
of capital will eventually reduce
labor’s marginal product.
Locate these points on
the chart

 Efficiency

 Underutilization

 Maximization of output
Example
Marginal Product of
Labor (# of Workers)     Output
Labor
0                 0               -
1                 4              4
2                 10             6
3                 17             7
4                23              6
5                28              5
6                 31             3
7                32               1
8                 31             -1
 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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