ECON 101 Lecture Notes - Lecture 9: Sunk Costs, Opportunity Cost, Rationality
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ECON 101 Full Course Notes
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Chapter 9 making decisions part 2: either-or decisions, sunk cost, and rationality. Explicit costs: costs that involved actually laying out money. Ex. using money to buy lunch opportunity cost of lunch is losing money or buying it. Implicit costs: does not require an outlay of money. Ex. going out with friends for lunch, spending more time at lunch than usual 30 min lunch alone 1 hour w/t friends. Ex. vacationing, missing work and losing wages, not actually paying for those days off tho. Together, these 2 make up opportunity cost. What we need to account for in businesses. Of a business is the value of its assets: Ex. if a business owns a factory or rents a factory, the one that owns the factory has an implicit cost bc they are not renting out their factories. Total revenue - [explicit cost + implicit cost] . If economic profit is positive, you"re generating the highest economic payoff.
