Introductory Concepts

# 1 - Recognizing Opportunity Cost - You are planning to go out on Friday night and you have the choice of doing three things. You could go to a concert that will cost you $50 and give you $90 in benefit*, you could go to the movies which would cost $20 and give you an $65 benefit or you could go get a pizza and hang out which would cost $10 and give you $40 in benefits. What should you do?

*the benefit is measured by the most you would pay to do that activity.

# 2 - Choice with Uncertainty - You a thinking about starting a small home business doing desk top publishing for local small businesses to make some money. You will need to buy a computer for $1000 in order to start this business. You are fully confident that you can make $4000 if you business focuses on providing editing and proofreading services. However, you would like to do more creative design work, but that work is more uneven. You learn through talking to people already working in creative desktop publishing that there is a 50% chance that you could make $7500 doing this work. What should you do?

# 3 - Opportunity Cost & Trade - You want to paint your your home office and the only time you have available to do this job is Saturday - you expect that it will take you about six hours to do this. Your boss tells you on Friday that he needs you to work all day on Saturday and that he will pay you double time or $150 (six hours at $25). You tell your friend about this and they say that they will paint your home office for $100. How does the opportunity of trade allow you to go beyond your production possibilities curve?

# 4 - Sunk Costs - You have paid $50 for a concert on Tuesday night that will give you a benefit of $60. The ticket is nonrefundable and cannot be sold. On Tuesday morning, you learn that there is another concert the same night that will give you a benefit of $70 and costs $45. What should you do?

# 5 - Putting It Together - You are trying to decide what to have for lunch at the food court. You see one option as to get a small pizza for $10 that will give you $20 in benefit and another option as a chicken burger and fries for $15 that will give you $24 in benefit. What do you do?

Right after you buy your lunch, your friend tells you the Indian restaurant around the corner is has an all you can eat buffet for $15 - you love Indian food and know this would give you a $40 benefit. What do you do? (you cannot return the lunch you just bought)