Making Economic Decisions - Making Economic Decisions...

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Making Economic Decisions Making Economic Decisions Trade-offs : the alternatives that one faces when they decide to do one thing rather than another Individuals, businesses, and societies make trade-offs. Opportunity Cost : the cost of the next best use of your time or money when you choose to do one thing rather than another Types of Costs for Businesses: Fixed Costs : costs that remain the same Variable Costs: expenses that change with the number of items produced Examples would be wages and raw materials Total Costs : Fixed Costs + Variable Costs Marginal Costs : the additional cost of producing one additional unit of output Types of Revenue: Total Revenue: Number of units sold multiplied by the average price per unit Marginal Revenue : The change in total revenue that results from selling one more unit of output.
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Marginal Benefit : the additional satisfaction or benefit received
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Unformatted text preview: when one more unit is produced • Types of Costs for Businesses: – Fixed Costs : costs that remain the same – Variable Costs: expenses that change with the number of items produced • Examples would be wages and raw materials – Total Costs : Fixed Costs + Variable Costs – Marginal Costs : the additional cost of producing one additional unit of output • Types of Revenue – Total Revenue : The number of units sold multiplied by the average price per unit – Marginal Revenue : the extra revenue that results from selling one more unit • Marginal Benefit : the additional satisfaction/benefit when one more unit is produced • This is often a goal of businesses • Cost-Benefit Analysis : model that compares the marginal costs and the marginal benefits of a decision – See Chart on page 508 – This is a tool that most businesses use...
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