Comparing Alternatives in Decision-Making (Concert vs. Babysitting)

Decision Rule: Maximizing Net Benefit

Comparison of Economic and Accounting Perspectives on Cost

Formula for Economic Cost

A freelance graphic designer is considering taking a Friday off to attend a one-day music festival. The ticket for the festival costs $100. If the designer worked that day, they would have been able to complete a project for a client and earn $450. What is the economic cost for the designer to attend the festival?

Analyzing the 'Free' Internship

The Baker's Dilemma: Calculating the True Cost

A student paid $50 for a monthly gym membership at the beginning of the month. This fee is non-refundable. Halfway through the month, the student is deciding whether to spend an evening at the gym or go to a movie with friends. The movie ticket costs $15. The student values the experience of going to the gym on this particular evening at $10. What is the economic cost of choosing to go to the movie?

A university student is considering attending a 3-hour professional development workshop. The registration fee is $50. To attend, the student must miss a part-time tutoring shift where they earn $20 per hour. Last week, the student spent $80 on a non-refundable textbook for a different class. Based on this scenario, match each economic concept to its correct monetary value related to the decision to attend the workshop.

Evaluating the Cost of a Business Asset

A software developer is deciding how to spend their weekend. They could spend 10 hours building a personal app project, which requires a $40 software subscription. Alternatively, they could take on a freelance gig that pays $50 per hour. A third option is to work overtime at their main job, which pays $35 per hour.

Statement: The economic cost of building the personal app is $390.

Evaluating Cost Perspectives for Decision-Making

Critique of a 'Cost-Free' Business Decision

An entrepreneur invests $10,000 of their own money to start a new business. The business has explicit costs (rent, wages, materials) of $40,000 for the first year. To run this business, the entrepreneur had to quit a job that paid an annual salary of $45,000. The annual interest they could have earned on the $10,000 investment was 5%. The total economic cost of running the business for the first year is $____.

A freelance graphic designer is considering taking a Friday off to attend a one-day music festival. The ticket for the festival costs $100. If the designer worked that day, they would have been able to complete a project for a client and earn $450. What is the economic cost for the designer to attend the festival?

Evaluating a Business Decision

Analyzing a Decision with Sunk Costs

A student is considering spending $15 to go to a movie. To do so, they would have to skip a 2-hour shift at their part-time job where they earn $20 per hour. They anticipate getting $10 worth of enjoyment from seeing the film. Analyze the costs and benefits of this decision by matching each economic term on the left with its corresponding value from the scenario on the right.

The economic cost of choosing an action is always greater than the direct, out-of-pocket expenses associated with that action.

Differentiating Economic and Accounting Costs

Calculating Economic Cost for a Production Decision

Critiquing a Business Decision

Explaining the Cost of an Owned Asset

An individual is deciding how to spend their Saturday. They have several options. They can work a 4-hour shift for $15 per hour, but they find the work unpleasant and value the effort involved as a $10 cost. Alternatively, they could visit a museum for a $20 entrance fee, an experience they value at $60. A third option is to attend a free concert in the park, which they value at $30. If this individual chooses to visit the museum, what is the economic cost of their decision?

Economic Profit

Decision Rule: Benefit vs. Economic Cost

Quantifying the Subjective Cost of Effort