ECON 102 Chapter Notes - Chapter 3: Marginalism, Marginal Cost

• School: UBC Okanagan, UBC OK
• Department: Economics
• Course: ECON 102
• Professor: Karl Pinno

Document Summary

Ch 3 optimization: doing the best you can. Economists use optimization to predict most of the choices that: people, households, business, govs make. Making an optimal decision, involves juggling multiple trade-offs: use principle of optimization to analyze any decision that an economic agent faces. Cost-benefit analysis decision maker finds that alternative highest value of net benefit: which is benefit-cost. Total cost includes direct cost of rent and indirect cost of communication. Optimum: the best feasible choice, optimum is the optimal choice. Optimization using total value has 3 steps: translate all costs and benefits into a common unit, like dollars per month, calculate total net benefit of each alternative, pick the alternative with highest net benefit. Using marginal analysis breaks an optimization problem down by thinking about how costs and benefits change: you hypothetically move from alternative to another. Economists use word marginal indicate difference between alternatives: usually a differe(cid:374)ce that represe(cid:374)ts o(cid:374)e (cid:862)step(cid:863) or (cid:862)u(cid:374)it(cid:863) (cid:373)ore.