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.
