lecture 4: opportunity cost

the value of a resource in its next best alternative use

opportunity cost

benefit the user would have from the alternative use, needs to be measurable

value

actual amount of resource used to obtain a particular benefit

direct cost

comparison of two benefits with two different uses of resources, identifty benefit of interest

step 1 in finding the opportunity cost

same amount of resources into each use (benefit per dollar spent, divide the dollars spent/amount of benefit

step two in finding the opportunity cost

make sure the equation is in a loss/gain ratio

third step in finding the opportunity cost

benefit sacrificed per unit of benefit gained

meaning of solution to the opportunity cost

always loss/gain

important to identify benefits and sacrifices

pitfalls on opportunity cost or things to consider