Chapter 3

Calculating net benefit

Net benefit = total benefit - total cost

Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its

Both normative and positive

Optimization in differences...

Calculates the change in net benefits when a person switches from one alternative to another and then use these marginal comparisons to choose the best alternative

Optimization in levels...

Calculates the total net benefit of different alternative and then chooses the best alternative

Indirect cost may refer to

Opportunity cost

Does the principle of optimization imply that people always make the best choices?

Yes, it is a good approximation for the decisions people make.

Optimization is the process that describes

the choices that businesses or people make.

Optimization in levels examines​ ___________, while optimization in differences analyzes​ ____________.

total net benefits of​ alternatives; the change in net benefits.