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Microeconomics Chapter 1

Microeconomics Chapter 1 - Microeconomics Marginal Analysis...

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Microeconomics: Marginal Analysis 24/08/2007 14:55:00 Opportunity Cost: The cost of your next best option.  The opportunity cost of eating at Snelling  instead of a 5-dollar McDonalds burger would be 5 dollars.  Marginal Analysis: Marginal=incremental (additional)  Marginal Benefit is the BENEFIT from doing a little bit more of an activity. Marginal Cost is the COST of doing a little more of an activity.  To a rational decision maker, only the marginal costs and marginal benefits  are relevant That does NOT consider sunk costs, which are costs that can not be avoided  regardless of future decisions. The correct question is:  do additional benefits outweigh additional costs? Cost-Benefit Principle: an individual should do more of an activity only if  marginal benefits outweigh marginal costs up to the point where MC=MB  (Marginal Costs=Marginal Revenue).
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