Eco 10-8-07 - Econ notes 10-8-07 1. Cost Questions: a....

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Econ notes 10-8-07 1. Cost Questions: a. Voluntary Army vs. a draft army? b. Raining at the gas pump: i. Be sure to distinguish between cost and pleasure (or lack thereof) 1. if it’s raining, nothing is being foregone c. A firm making $1 million “profit” i. May in fact be making a loss when you consider the opportunity cost 1. consider what you could be making instead of the $1 million 2. Categories of Cost : a. Sunk Costs: Costs that cannot be recovered i. As a result, these are irrelevant to decision making ii. EX: Sunk Cost: 1. Advertising 2. Rent 3. Movie Tickets b. Avoidable/ Ordinary Costs : Opportunity costs that are not sunk, they can be recovered or avoided c. Variable Costs: Costs that change when output changes d. Fixed Costs: Lump sum costs that don’t change with output e. Costs can be a combination of fixed, variable, and sunk/ordinary i. EX: Suppose you own a comic book store Ordinary Sunk Fixed Heating Advertising/ Custom Sign Variable Comic Books Special give-aways w/ product
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This note was uploaded on 04/07/2008 for the course ECO 2302 taught by Professor Smith during the Spring '08 term at University of Texas at Dallas, Richardson.

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Eco 10-8-07 - Econ notes 10-8-07 1. Cost Questions: a....

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