lecture4 - benefits and costs - handout

Lecture4 benefits - Topic 3 Balancing benefits and costs USC Marshall Balancing benefits and costs Principles of optimization How to maximize or

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1/18/2009 1 Topic 3: Balancing benefits and costs USC Marshal Balancing benefits and costs • Principles of optimization – How to maximize or minimize a function • How optimization relates to individual choice – When a decision problem is framed right, it almost USC Marshal When a decision problem is framed right, it almost always comes down to maximizing net benefit (total benefit minus total cost) • The concepts of – Marginal benefit and marginal cost – Opportunity cost Balancing benefits and costs • Example: You need to decide how much time to devote to studying for this course. Assume that we can attach a monetary value to the time/day you devote to the course as follows: Hours 0123 4 56789 USC Marshal • If you have nothing else to do, how many hours/day should you study? Invested Total Benefit 01 52 83 9 4 8 5 56 06 36 46 3
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1/18/2009 2 Balancing benefits and costs • In all likelihood, you do have something else to do in addition to studying for this course. Suppose that each hour you do not study, you engage in more fun activities, and you attach a monetary value of $6 to each hour you spend not studying. USC Marshal – This value captures the opportunity cost of your time • How many hours should you study now? Balancing benefits and costs Hours studying Total Benefit Total Cost 0 00 1 15 6 2 28 12 USC Marshal 3 39 18 4 48 24 5 55 30 6 60 36 7 63 42 8 64 48 9 63 54 Balancing benefits and costs • Alternative approaches? – Use marginal analysis Marginal benefit: The increase in total benefit resulting from increasing time invested by one USC Marshal hour Marginal cost: The increase in total cost resulting from increasing the time invested by one hour
Background image of page 2
1/18/2009 3 Balancing benefits and costs Hours studying Total Benefit Total Cost
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/07/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.

Page1 / 8

Lecture4 benefits - Topic 3 Balancing benefits and costs USC Marshall Balancing benefits and costs Principles of optimization How to maximize or

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online