1	Opportunity Cost Equal to the VALUE of the next-best forgone alternative, whenever a CHOICE is made. The decision to produce or consume a product involves giving up another product—the real cost (not accounting cost) is the next best alternative foregone.
2	Trade-off What has to be sacrificed in order to obtain a good (equivalent to opportunity cost)
3	Characteristics of Cost-Review Costs are “to” someone. For example: choice between granola bars vs group having no choice. Only ACTIONS have costs. All costs lie in the future Cost and price are not the same.
4	Problem #1 By taking an airplane one can go from D to H in one hour. The same trip takes five hours by bus. If the air fare is $30 and the bus fare $10, which would be the cheaper mode of transportation for someone who could earn $2 per hour during that this time? For someone who could earn $10 an hour?
5	Problem #1 Continued Equivalent Wage Salary $2/hr $10/hr Airfare 1 hour $2 $10 Airfare Cost $30 $30 $32 $40 Bus 5 hours $10 $50 Bus Cost $10 $10 $20 $60
6	Problem #2 Suppose that there is a drastic reduction in the availability of gasoline and the price skyrockets to $3/gallon. For whom is the cost of gasoline higher, a retired person living on social security or a prominent cosmetic surgeon? Suppose that in response to a gasoline shortage, the government placed a ceiling on the price of gas, at $1.05/gallon. For whom is the cost higher in this situation?
7	Problem #2 Continued
8	Problem #2 Continued
9	Problem #2 Continued
10	Problem #3 What is the cost per ticket to a professional baseball club that offers 50 free tickets to an orphanage? Does it matter for what game the tickets are offered? Why would it likely cost the ball club more to give the tickets to college students than to poor orphans?
11	Marginal Cost/Benefit The amount spent on producing one extra unit. The marginal cost is the increase in total cost when one more unit is produced. The increase in private benefit resulting from the consumption of one more unit or the production of one more unit.
12	Synonyms Marginal Cost/Benefit = Incremental or Variable
13	Marginal Cost/Benefit Service industries, such as airlines and hotels, have products that are perishable (an empty seat after take-off or an empty hotel room the next morning are worth zero)
14	Marginal Cost/Benefit
15	Marginal Cost/Benefit
16	Marginal Cost/Benefit The marginal cost (variable or incremental cost) of servicing one more customer is extremely low in relation to the normal ticket price/room charge. It is easy to understand why these organizations often resort to extremely low prices to attract customers on certain occasions to fill in unutilized capacity.