The marginal cost of search is combined with the marginal benefit of search to identify the efficient amount of information search. Acquiring information is beneficial, but doing so incurs a cost. Information is produced. Information is consumed. Efficiency is achieved by equating the incremental opportunity cost incurred in the production or acquisition of information (marginal cost of search) with the increment benefit generated from the information (marginal benefit of search).

Opportunity Cost of Resources

The Curve

• Labor: An important component of search cost is human search effort. The time a person spends making phone calls, reading through a newspaper, and driving around town is an important search cost. And of course, comparable to other goods, the production of information goods such as newspapers, television programs, and advertising all require labor effort.


• Capital: The cost of using assorted capital -- buildings, vehicles, tools, and equipment -- is incurred for search effort as it is for the production of other goods. A car is used to drive from store to store. A telephone is used to call about prices. Printing presses are used to produce newspapers and magazines. Computers are used to access information over the Internet.


• Land: The cost of land, especially the cost of raw materials, is the third search effort cost. The cost of gasoline to fuel vehicles, of the paper used in printed materials, of the coal used to generate electricity used to operated computers, are all information search cost components.


• Entrepreneurship: Lastly, the normal profit incurred in the use of entrepreneurial services is as important for information search and production is for any other goods.

Marginal Cost of Search Curve