Opportunity cost and thinking at the margin

Opportunity cost
and thinking at
the margin
Opportunity Cost
• The cost of the loss of the next most
desirable item in a trade off
Thinking at the Margin
• When you decide how much more or less
to do in a decision instead of all or nothing.
Marginal Analysis
• Making decisions based on the impact of
the next dollar spent or the change one
more unit would bring about.
Thinking at the margin
• Options
• 1st hour of study time
• 2nd hour of study time
• 3rd hour of study time
C on test
B on test
B+ on test
Opportunity Cost
One hour of sleep
Two hours of sleep
Three hours of sleep
Marginal Utility
• Amount of satisfaction that comes from
adding each additional unit.
• Diminishing marginal utility – each
additional unit adds less satisfaction to the
consumer then the previous.