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Opportunity Costs

Opportunity Costs - This is known as the law of increasing...

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This is known as the law of increasing opportunity costs : as more of one type of good is produced, the opportunity cost of producing it will increase. There are two main reasons. First, required inputs become scarcer. LAND all natural resources – paid for with rent LABOR human resources – paid for with wages CAPITAL things we make to help us make other things – paid for with interest ENTREPRENEURSHIP risk-taking, organizing ability of certain people – paid for with profit Economics is largely a study of decision-making. When a person weighs the benefits of something against its costs prior to a decision, he is conducting a benefit-cost analysis . A rational person or firm will decide to do something when its benefits outweigh its costs. Thus, marginal decision-making is the act of weighing the benefits of an incremental change against its costs. The marginal benefit of an increase in production is the additional revenue gained from the sale of one more unit. The marginal cost of an increase is the cost of producing one more unit; it usually includes things like the cost of the additional labor hours needed to produce the unit, or the cost of the additional materials required. principle of diminishing marginal utility , which holds that as we consume more of a good or service, we usually derive less satisfaction from each additional unit. The principle has many names: diminishing returns and
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