Economic way of thinking about costs

Economic way of thinking about costs - Economic way of...

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Economic way of thinking about costs
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Costs relevant for decision making LRATC relevant for decision making before embarking on an investment project. The expected price of the product has to cover all costs in the long run. MC relevant after embarking on investment project. Expand output as long as MR exceeds MC .
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Costs are always forward- looking Opportunity costs are expected costs - they represent the highest valued option foregone in the future . Always an inherent uncertainty in decision- making.
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Costs already incurred and irreversible are sunk and irrelevant. Accounting or historical costs look backward They can be helpful but the world is constantly changing and “past returns are no guarantee of future returns.” Is the price of a home or antique car, at any given time, based on what it cost in the past? Relevant choice at any given time: What do I do now to either maximize profits or minimizes losses—in the future ?
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This note was uploaded on 04/01/2012 for the course ECON 101 taught by Professor Balaban during the Fall '07 term at UNC.

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Economic way of thinking about costs - Economic way of...

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