Is the following statement correct:
The Economics’ book costs 35 lei?
Actions have different costs for different people →
example
There are no “objective” costs
The value is determined at the margin
Sunk cost versus marginal cost
Example: You buy a 40 lei pizza. In the moment you taste
it, you find it is not good. How much will it cost you not to
eat the pizza you bought?
The most common error in determining the costs:
the confusion between the irretrievable costs and
the marginal costs
The irretrievable (sunk) cost is part of history,
may be a reason for regret but it is no longer
relevant to the economy of today's decisions
Why does it cost more to produce a bicycle than
a chair?
Why did the manufacturers choose those factors of
production and why in that combination?
Why did it cost so much the usage of those materials?
Production costs → opportunity costs
Why is the wage rate for unskilled labor in India
so low?
Land - the resource that best illustrates the
concept of opportunity cost
Example: you want to buy a land to build a
house. How much will you have to pay for this
land?
The value of the land depends on the alternative
uses
Graphical representation
Opportunity cost and marginal cost are the same
thing, viewed from different angles
All opportunity costs are marginal costs and all
marginal costs are opportunity costs → marginal
opportunity cost
Soybean Output per Corn Output per
Harvest Harvest
14.5 0
13.5 1 PPF graphical
12.4 2
11.2 3
representation
9.9 4
What is the marginal
8.5 5 oppotunity cost of
7 6 corn output?
5.4 7
3.7 8
1.9 9
0 10
Corn output Marginal opportunity cost
(units) (price of soybeans =1$)
1 1$
2 1.1$
3 1.2$
4 1.3$
5 1.4$
6 1.5$
7 1.6$
8 1.7$
9 1.8$
10 1.9$
When will he decide to produce a second
corn unit? What about the third? …..
Conclusions:
Producers analyze marginal production costs to decide
what and how much to produce
Relative prices inform producers about the marginal costs
and benefits of their alternatives plans of production
What is the supply curve?
Graphical representation: the supply curve for
corn (based on marginal opportunity cost)
Supply ≠ supplied quantity
Supply itself can change
Determinants of the changes in the supply curve
Definition of marginal and average
production costs
The relationship between marginal and
average costs and their impact on
decision-making process
Units of Total cost Marginal Average
corn of cost cost
produced producing
corn
0 0$
1 1$
2 2.1$
3 3.3$
Definition
Formula
Interpretation of the elasticity coefficient
Costs, in addition to the economic component,
have a strong ethical and political dimension
Public opinion → sellers have the right to cover
their costs, but not to set prices much higher
than these
This way of thinking, in which cost serves as
justification, is found in current legislation
“Dumping” concept