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Opportunity Cost

mongoose
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9/4/2011 11:12:05 PM
Posted: 5 years ago
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?
It is odd when one's capacity for compassion is measured not in what he is willing to do by his own time, effort, and property, but what he will force others to do with their own property instead.
darkkermit
Posts: 11,204
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9/5/2011 12:03:49 AM
Posted: 5 years ago
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

10 units of good A = 1 unit of good B.

It doesn't make sense to say which 1 has a greater opportunity cost. It's like asking which one has a greater opportunity cost an hour watching TV or an hour on DDO.
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mongoose
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9/5/2011 12:11:29 AM
Posted: 5 years ago
At 9/4/2011 11:49:00 PM, Greyparrot wrote:
In the same amount of time?

Yes.
It is odd when one's capacity for compassion is measured not in what he is willing to do by his own time, effort, and property, but what he will force others to do with their own property instead.
Greyparrot
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9/5/2011 1:36:27 AM
Posted: 5 years ago
At 9/5/2011 12:06:24 AM, mongeese wrote:
How valuable is Unit A? How valuable is Unit B?

My understanding is based on what value you are able to produce per set time.

A may be more valuable than B by a factor of 10, but may take 100 times longer to produce.
Ragnar_Rahl
Posts: 19,297
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9/5/2011 7:47:51 PM
Posted: 5 years ago
You can either produce 10 units of good A or 1 unit of good B.

The opportunity cost of 10 units of good A is 1 unit of good B

The opportunity cost of 1 unit of good B is 10 units of good A

Assuming those are the only things we can produce with the timeframe, materials, and fixed capital we are considering, the one with the least value has the greatest opportunity cost (the opportunity cost consists of the most valuable goods).
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
Ragnar_Rahl
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9/5/2011 7:54:34 PM
Posted: 5 years ago
It is not however implied by the information given that the units are equal Kermit.

10A=/=1B, rather OC(subscript10A)=1B and OC(subscript1B)=10A. There is no substitution operation that lets us into those subscripts to solve for the respective values of 10A and 1B, as their only mathematical meaning is "this is a different variable," the nature of that variable is nonmath information.
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
ryan_thomas
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9/5/2011 8:57:24 PM
Posted: 5 years ago
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

The first one.
All Hail Lord Ryan!
Ragnar_Rahl
Posts: 19,297
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9/5/2011 9:05:49 PM
Posted: 5 years ago
At 9/5/2011 8:57:24 PM, ryan_thomas wrote:
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

The first one.
And how did you arrive at that conclusion?
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
wjmelements
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9/5/2011 11:43:07 PM
Posted: 5 years ago
I am of the opinion that our macro teacher needs to qualify more of his statements. For example, he said we have unlimited wants. BS. See diminishing marginal utility.
in the blink of an eye you finally see the light
Ragnar_Rahl
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9/6/2011 12:01:13 AM
Posted: 5 years ago
At 9/5/2011 11:43:07 PM, wjmelements wrote:
I am of the opinion that our macro teacher needs to qualify more of his statements. For example, he said we have unlimited wants. BS. See diminishing marginal utility.

Is there ever a point at which you don't want more of anything?

If not, then utility only diminishes for part of a curve, and presumably flattens out or even raises at some others (indeed, I know it increases at some parts of the curve, I gain much more utility from an hour to play a video game than a minute, a minute will just be spent on the load screen).
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
LeafRod
Posts: 1,548
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9/6/2011 2:53:41 AM
Posted: 5 years ago
At 9/5/2011 11:43:07 PM, wjmelements wrote:
I am of the opinion that our macro teacher needs to qualify more of his statements. For example, he said we have unlimited wants. BS. See diminishing marginal utility.

Perfectly reasonable assumption to make
darkkermit
Posts: 11,204
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9/6/2011 4:36:26 AM
Posted: 5 years ago
At 9/5/2011 11:43:07 PM, wjmelements wrote:
I am of the opinion that our macro teacher needs to qualify more of his statements. For example, he said we have unlimited wants. BS. See diminishing marginal utility.

Diminishing marginal utility dos not mean that there is a limit. It only means that the utility from resources decreases, but it does not go to zero. For example a function 1/x approaches zero, but it never actually reaches it. Even if you have no personal use for resources, surely you can find additional utility in giving the resources to friends, family or charity :).
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mafiagame1
Posts: 25
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9/6/2011 7:48:50 AM
Posted: 5 years ago
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

depends on the value of the items and also the time it takes to produce.

I think it's implied that the time is equal for both choices.

I think it's also implied that you can only do either of these two actions.

Therefore by default the answer will be the lowest Q x P as you opportunity cost will be not doing the other choice which will have the highest Q x P
seraine
Posts: 734
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9/9/2011 5:31:44 PM
Posted: 5 years ago
At 9/5/2011 8:57:24 PM, ryan_thomas wrote:
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

The first one.

10 boogers or 1 Mercedes?
seraine
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9/9/2011 5:32:27 PM
Posted: 5 years ago
At 9/9/2011 5:31:44 PM, seraine wrote:
At 9/5/2011 8:57:24 PM, ryan_thomas wrote:
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

The first one.

10 boogers or 1 Mercedes?

That's a bit trollish. 10 pieces of wheat or 1 Mercedes?
seraine
Posts: 734
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9/9/2011 5:33:06 PM
Posted: 5 years ago
At 9/9/2011 5:32:27 PM, seraine wrote:
At 9/9/2011 5:31:44 PM, seraine wrote:
At 9/5/2011 8:57:24 PM, ryan_thomas wrote:
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

The first one.

10 boogers or 1 Mercedes?

That's a bit trollish. 10 pieces of wheat or 1 Mercedes?

I think they are the same to you unless someone wants to trade.
econbob
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9/10/2011 11:18:50 AM
Posted: 5 years ago
At 9/9/2011 5:33:06 PM, seraine wrote:
At 9/9/2011 5:32:27 PM, seraine wrote:
At 9/9/2011 5:31:44 PM, seraine wrote:
At 9/5/2011 8:57:24 PM, ryan_thomas wrote:
At 9/4/2011 11:12:05 PM, mongoose wrote:
You can either produce 10 units of good A or 1 unit of good B. Which has the greater opportunity cost?

The first one.

10 boogers or 1 Mercedes?

That's a bit trollish. 10 pieces of wheat or 1 Mercedes?

I think they are the same to you unless someone wants to trade.

If you get equal utility from both of them then sure. If the 10 units of A are cheeseburgers and the 1 unit of B is a life saving drug to an illness that you currently possess, they both still retain value even if no one wants to trade with you as they both provide you utility. You wouldn't give up producing the life saving drug just to hog down some cheeseburgers would you?

Opportunity cost is related to personal utility, not trade.
mongeese
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9/10/2011 1:54:56 PM
Posted: 5 years ago
At 9/6/2011 4:36:26 AM, darkkermit wrote:
At 9/5/2011 11:43:07 PM, wjmelements wrote:
I am of the opinion that our macro teacher needs to qualify more of his statements. For example, he said we have unlimited wants. BS. See diminishing marginal utility.

Diminishing marginal utility dos not mean that there is a limit. It only means that the utility from resources decreases, but it does not go to zero. For example a function 1/x approaches zero, but it never actually reaches it. Even if you have no personal use for resources, surely you can find additional utility in giving the resources to friends, family or charity :).

If you're just giving it away, you aren't really the one who wanted it, they are. Eventually, you'll run out of people to give things to, since they are all already satisfied. Marginal utility definitely eventually becomes negative; I believe Lemony Snicket devoted a passage in one of his books to how eating milkshakes repeatedly lessens their value until you're sick of milkshakes, but finding a tack in your milkshake repeatedly increases the pain until you burst into tears every time you find one.
darkkermit
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9/10/2011 5:12:01 PM
Posted: 5 years ago
At 9/10/2011 1:54:56 PM, mongeese wrote:

If you're just giving it away, you aren't really the one who wanted it, they are.

More then one party can benefit from a transaction. Giving to charity is just like any transaction. You gain utility from doing a good deed, others obtain utility from your charity. People will run out of things to give.

Eventually, you'll run out of people to give things to, since they are all already satisfied.

Giving is not necessarily that thing one gets least marginal utility from. Otherwise, only the super-rich would give to charity. This is false.

Marginal utility definitely eventually becomes negative

Unless there's a cost to holding the resource or transaction cost, it does not. At best marginal utility can be zero, in which you just store your money in the bank. Even then, savings has value.

I believe Lemony Snicket devoted a passage in one of his books to how eating milkshakes repeatedly lessens their value until you're sick of milkshakes,

Why do we assume the resource, milkshakes must be used in the traditional sense?
The traditional text-book example of marginal utility, usually involving food, is wrong. Marginally utility isn't about sensous enjoyment or saturation. This mises article provides a better example of what marginal utility really is:

http://mises.org...

One does not have to eat it. Also, milkshakes can have negative utility sense it cost money for storage, and can spoil. Not so with money, especially If you have a bank account.

but finding a tack in your milkshake repeatedly increases the pain until you burst into tears every time you find one.

Do tacks not have other uses besides putting it down your throat?
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mongeese
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9/10/2011 5:35:55 PM
Posted: 5 years ago
At 9/10/2011 5:12:01 PM, darkkermit wrote:
At 9/10/2011 1:54:56 PM, mongeese wrote:

If you're just giving it away, you aren't really the one who wanted it, they are.

More then one party can benefit from a transaction. Giving to charity is just like any transaction. You gain utility from doing a good deed, others obtain utility from your charity. People will run out of things to give.

If, going back to the concept that wants are limited, other people already have enough stuff that diminishing utility has reached 0, then their utility is not increased through the donation, which means you're no longer doing a good deed at all.

Eventually, you'll run out of people to give things to, since they are all already satisfied.

Giving is not necessarily that thing one gets least marginal utility from. Otherwise, only the super-rich would give to charity. This is false.

But if we assume that eventually everyone has what they want individually, nobody would be happy with receiving additional stuff from anyone else.

Marginal utility definitely eventually becomes negative

Unless there's a cost to holding the resource or transaction cost, it does not. At best marginal utility can be zero, in which you just store your money in the bank. Even then, savings has value.

That's usually the case, but there are others. For example, in cases of employment, if you're employing too many people, some people will have nothing to do but distract others.

I believe Lemony Snicket devoted a passage in one of his books to how eating milkshakes repeatedly lessens their value until you're sick of milkshakes,

Why do we assume the resource, milkshakes must be used in the traditional sense?

Eventually, you'll run out of uses for milkshakes in any other way, too.

The traditional text-book example of marginal utility, usually involving food, is wrong. Marginally utility isn't about sensous enjoyment or saturation. This mises article provides a better example of what marginal utility really is:

http://mises.org...

I'll have to read that later.

One does not have to eat it. Also, milkshakes can have negative utility sense it cost money for storage, and can spoil. Not so with money, especially If you have a bank account.

If money is the only thing that doesn't reach negative marginal utility, then what's the point of having unlimited money if anything you'd buy with it has already reached negative marginal utility?

but finding a tack in your milkshake repeatedly increases the pain until you burst into tears every time you find one.

Do tacks not have other uses besides putting it down your throat?

This is assuming that you find it when it's too late. Tacks will eventually reach negative marginal utility, too.