Rational_Choice - Transportation = $800 Cost of staying...

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Rational Choice Focus on opportunities Realize trade-offs Construct opportunity set Ignore sunk costs Balance costs and benefits Marginal costs and benefits MB = MC Maximize surplus Compare surplus and fixed costs
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Sunk Costs Choice involves alternatives Compare costs of choice and the alternative Costs that are the same for both are sunk Sunk costs are not opportunity costs Sunk costs are not recoverable Ignore sunk costs
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Study Abroad? Cost of going abroad Tuition = $600 Housing = $500 Food and entertainment = $400
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Unformatted text preview: Transportation = $800 Cost of staying home Tuition = $600 Housing = $300 or $0? (Can you sublet?) Food and entertainment = $200 Transportation = $0 55 10 45 20 36 1 30 28 2 40 21 3 50 15 5 60 10 8 70 6 12 80 3 17 90 1 23 100 30 Surplus Surplus = benefits costs At 70%, benefits = 55 6 = 49 Costs = 12 Surplus = 49 12 = 37 Surplus = sum of the (MB MC) = (10-0) + (9-1) + (8-1) + (7-1) + (6-2) + (5-3) + (4-4) = 37...
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Rational_Choice - Transportation = $800 Cost of staying...

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