Cost and Benefits

Opportunity Cost

Value of the next best alternative (i.e. the most valuable thing you give up)

Total Cost

1. Total Cost (TC)= the sum of all costs involved in production of the good. Includes:

a) Explicit: obvious costs (materials, tools, electricity)

b) Opportunity Cost (or implicit): not so obvious

Marginal Cost

Additional or incremental cost of doing 1 more unit of X.

Total Benefit

Benefits of all of the units.

Marginal Benefit

Incremental or change in benefits of an additional unit.

Net benefits

TB-TC (Goal is to maximize net benefits)

Comparative Advantage

The ability to produce a good or service at a lower cost than other producers.

Absolute Advantage

The ability to produce more of a good or service in total than someone else