Opportunity Cost and Rational Decisions

Arlene quits her $125,000 a year job to take care of her ailing parents. What is the opportunity cost of her decision?

At least $125,000

Here is a list of alternatives to taking your exam today, in order of preference: 1) Partying with friends; 2) Sleeping; 3) Playing tennis. How is the opportunity cost of taking the exam measured?

By the value of parying with friends only

Economus assume that individuals

Or rational and respond to incentives

when we want to purchase a portable device, and discover that Apple wants $649 for their new iPhone, we can conclude that

The managers that Apple must have estimated that this precise price will earn Apple the highest possible profit

opportunity cost is:

The value of the best alternative sacrificed when a choice is made

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave _____, or that they make the best decisions given their knowledge of the cost and benefits

rationally