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Lecture 1 - 1 Econ definition 2 Opportunity Cost 3 Marginal...

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1. Econ: definition 2. Opportunity Cost 3. Marginal 4. Methodology 5. Scope 6. Pitfalls 7. Econ obj 1. The study of how to efficiently utilize scarce resources to satisfy unlimited wants Economics is always relative: there is a lot of water on earth but in order to meet the needs/wants, we do not have enough. Economics is about making choices efficiently 2. Making choices = opportunity cost Opportunity cost – the value of the next-best option forgone Sleep – 98 , leisure breakfast – 82, jogging 12, study - -2, econ-2 – 99 Profit = π (Accounting) Profit ( π a ) = TR – TC x TR = Total revenue = price * quantity X stands for explicit, explicit cost is anything that leaves paper trail such as paying employees.
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(Economic) Profit Π = π a – TC M M stands for implicit, implicit cost is anything that does not leave paper trail (opportunity cost) Boeing = $50,000 Florist: total revenue (TR) = $500,000, Total Cost (TC x ) = $475,000 TR – TC x = π a = $25,000 Take into account implicit cost (TC m ) = $50,000, (opportunity cost of giving up Boeing job) π a = $25,000 - (TC m ) = $50,000 = π = -$25,000 3. Marginal
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