ecn 104 week 2.1 (lec 3)

lecture 3 notes

1. optimization using TOTAL VALUE…

calc the total value of each feasible option & then picks one w highest total val

2. optimizing using MARGINAL ANALYSIS…

calc the CHANGE in total value when a person switches from one option to another THEN uses these marg comparisons to choose option w highest total val

optimizing using TOTAL VALUE and optimizing using MARGINAL ANALYSIS gives? ==

identical answers

how to optimize ? 👬

yield IDENTICAL answers

optimization techniques? (2)

1. total value

2. marginal analysis

TOTAL VALUE equation

total benefit - total cost (net benefit)

MARGINAL ANALYSIS formula

marginal benefit = marginal cost

renting optimal apartment trade off?

cost and distance

OPTIMIZATION USING TOTAL VALUE

1. translate all C and B into COMMON units

2. calc total NET BENEFIT of each alternative

3. PICK alt w HIGHEST net benefit

what does it cost to commute?

public transit, gas, parking, time

which apartment was optimal?

FAR bc it was cheapest

MARGINAL ANALYSIS (3)

1. TRANSLATE all C and B into common units

2. calc MARGINAL consequences of moving bw alt

3. CHOOSE best alt moving to IT makes you BETER off vs moving AWAY makes u worse off

types of curves?

MARGINAL COST and TOTAL COST

PRINICIPLE OF OPTIMIZATION AT MARGIN

if an option is the best choice, you'll be BETTER off as you move TOWARD it and WORSE as you move away from it