Opportunity Cost, Labor Choice & Low-Hanging Fruit Example

Flashcards cover the lecture’s core ideas: definition and application of opportunity cost, wage comparisons between sectors, the low-hanging-fruit/diminishing-returns concept, and quantitative examples using Ushi’s can-collecting versus dish-washing choice.

What is the economic definition of opportunity cost?

The value of the next-best alternative that must be forgone when a choice is made.

Why must service-sector wages stay roughly competitive with manufacturing wages?

If manufacturing always paid more, workers would switch to manufacturing, leaving too few people to provide essential services such as piloting, driving buses, or cutting hair.

How do workers use opportunity cost when choosing between two jobs?

They compare the wage in one job to what they could earn in the alternative job; the forgone wage is the opportunity cost of taking the chosen job.

How do firms apply the concept of opportunity cost?

A firm compares potential profit in its current line of business to what it could earn in another activity; if profits are higher elsewhere, it will reallocate resources.

Explain the "low-hanging fruit" (diminishing returns) principle illustrated by Ushi’s can search.

Easy-to-find resources are used first; after they are exhausted, each additional unit of effort yields less output, so productivity falls over time.

In Ushi’s example, how many cans does he collect in each of the first three hours?

Hour 1: 600 cans, Hour 2: 400 cans, Hour 3: 300 cans.

At a redemption price of 2¢ per can, what is Ushi’s marginal revenue in each of the first three hours?

Hour 1: $12, Hour 2: $8, Hour 3: $6.

Given a dish-washing wage of $6/hr and a 2¢ redemption rate, how many hours will Ushi spend collecting cans?

Three hours, because the first three hours each earn at least $6; the fourth and fifth do not.

Decision rule for Ushi (or any worker) when choosing between tasks

Spend time on an activity as long as its marginal benefit (revenue) is greater than or equal to the wage available in the alternative job.

What happens to Ushi’s marginal revenue per hour when the redemption rate doubles to 4¢ per can?

His revenue per hour also doubles: $24, $16, $12, $8, and $4 for hours 1–5 respectively.

With a 4¢ redemption rate and a $6 dish-washing wage, how many hours will Ushi now collect cans?

Four hours, because the first four hours each pay more than $6, while the fifth pays less.

What consumer-side example illustrates opportunity cost in the lecture?

Eating a hamburger prevents having room to eat pizza, just as watching football prevents reading a book at the same time.

Key motivation behind most firms, as stated in the lecture

Firms will exit a business and enter another if they can earn more profit elsewhere—opportunity cost drives their decisions.