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BENEFIT-COST ANALYSIS: An analytical technique that compares the benefit generated by an activity with its opportunity cost of production. The rule is that if benefits exceed costs, then the activity is efficient and should be undertaken. In some cases the end result of benefit-cost analysis is net benefits, which is benefits minus cost. A positive value means the activity is efficient. In other cases the end result of benefit-cost analysis is a benefit-cost ratio, which is benefits divided by costs. A ratio greater than 1.0 is thus the indication of an efficient activity.

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Lesson 4: Production Possibilities | Unit 2: The Schedule Page: 7 of 24

Topic: Changing Cost <=PAGE BACK | PAGE NEXT=>

Opportunity cost is greater as we produce more calibrators. Why?
  • The law of increasing opportunity cost which says that the opportunity cost of producing a good increases as more and more of the good is produced.
  • Third rule of inequality. All resources are not equally suited to produce all goods.
  • First calibrator (A to B) uses resources best suited for calibrators and least suited for shoes.
  • Tenth calibrator (J to K) uses resources least suited for calibrators and best suited for shoes.
  • As more of a good is produced and supplied, opportunity cost increases.

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AVERAGE FACTOR COST AND MARGINAL FACTOR COST

A mathematical connection between average factor cost and marginal factor cost stating that the change in the average factor cost depends on a comparison between average factor cost and marginal factor cost. For perfect competition, with no market control, marginal factor cost is equal to average factor cost, and average factor cost does not change. For monopsony and other firms with market control, marginal factor cost is greater than average factor cost, and average factor cost rises.

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The first "Black Friday" on record, a friday marked by a major financial catastrophe, occurred on September 24, 1869 -- A FRIDAY -- when an attempted cornering of the gold market induced a financial crises and economy-wide depression.
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