Chap001.3 - to buy? Chapter 1: Thinking Like an Economist...

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3 Chapter 1: Thinking Like an Economist Slide 13 Four Important Decision Pitfalls ± Pitfall 3: Failure To Ignore Sunk Costs z Sunk cost ² A cost that is beyond recovery at the moment a decision must be made. z The only costs that should influence a decision about whether to take an action are those that we can avoid by not taking the action. z Example? Chapter 1: Thinking Like an Economist Slide 14 Four Important Decision Pitfalls ± Pitfall 4: Failure To Understand the Average-Marginal Distinction. z Quantity decisions should be made by comparing marginal cost to marginal benefit, not average cost to average benefit. z Example: How large of an ice cream cone
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Unformatted text preview: to buy? Chapter 1: Thinking Like an Economist Slide 15 Four Important Decision Pitfalls ± Marginal Benefit z The increase in total benefit that results from carrying out one additional unit of an activity. ± Marginal Cost z The increase in total cost that results from carrying out one additional unit of an activity. Chapter 1: Thinking Like an Economist Slide 16 Four Important Decision Pitfalls ± Average Cost z The total cost of undertaking n units of an activity divided by n. ± Average Benefit z The total benefit of undertaking n units of an activity divided by n....
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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