Cost-Benefit Analysis

Optimal Decision-making

The process by which rational individuals aim to maximize the benefits by considering both costs and benefits.

Opportunity Cost

The cost of the next best alternative that is foregone when a decision is made.

Explicit Costs

Measurable, direct costs incurred by a firm, such as purchasing assets or hiring workers.

Implicit Costs

Costs associated with decisions that do not have a measurable financial transaction, such as lost income when giving workers a day off.

Total Cost

The sum of explicit and implicit costs.

Accounting Profit

Profit calculated as total revenue minus explicit costs.

Economic Profit

Profit calculated as total revenue minus total cost, which includes both explicit and implicit costs.

Utility

A measure of satisfaction, usefulness, or value derived from a good or service.

Units of Utility

The measurement of utility, expressed as 'utils'.

Marginal Costs and Benefits

Costs and benefits that cannot be examined if something cannot be broken down incrementally.