540 - Managerial Economics - Module 1–
Chapters 1, 2, and 3; Pages 2-64.
Write an essay on your explanation of "opportunity cost" and explain how it relates to the definition of economics. To illustration this concept, give your explanation of the following decisions that would entail the greatest opportunity cost:
a. Allocating a square block in the heart of New York City for a surface parking lot, OR
b. Allocating a square block at the edge of a typical suburb for such a lot?
Opportunity cost can be defined as things that are lost such as the use of land, equipment, any type of labor as well as managerial talent, due to choosing to get more of one thing versus more of something else, in other words there is no free lunch. When we make decisions on products and services to provide for our society we are making decisions on not only what we will provide but also what we will not provide because by making what we have chosen we cannot provide more of other things. In order to analyze and fully understand what the opportunity costs of a choice are, it is easier to understand if we pick specific examples to evaluate. In this discussion we will look at the opportunity costs of choosing to use a square block in the heart of New York City for a parking lot in relation to allocating a square block at the edge of a typical suburb for such a parking lot instead.
When we choose to allocate a square block to parking in the heart of New York City, we are choosing to use a block of land in the middle of a large city the comprises many different interests and peoples for parking. While using the square block, as surface parking is a choice that does not cost much to implement it requires significant opportunity costs. The most obvious opportunity cost is putting in a parking structure versus putting in a surface parking lot. By not using the block for a parking structure, we forgo many levels of parking for one level of parking. If parking is our major concern that leads us to use the block to create a parking opportunity we lose many multiples of that parking opportunity by not putting in a parking structure instead of the surface lot. While we have opportunity cost of parking we also have opportunity cost relating to other opportunities such as housing. Instead of putting in a surface lot or a parking structure, we could put in an apartment building with a parking structure underneath it. This would mean that not only do we lose parking by just using the block as a surface lot we also could lose housing. To further our analysis, we also know that we could put in an office building or stores, which would create opportunity costs of office space, or business income from stores at the opportunity cost of parking and housing. Due to the location in a large city, this square block can represent an opportunity for developing for many different things. If we compare the opportunity costs directly to allocating a square block at the edge of a typical suburb, we can see that the relative density of the population is much higher in New York City than it would be for a typical suburb so from that perspective alone we see that many more opportunity costs are incurred by picking the lot for surface parking lot in the heart of New York City versus the edge of a typical suburb.
Outline three examples of recent decisions that you made in which you, at least implicitly, weighed marginal cost and marginal benefit.
Marginal cost and marginal benefit are understood as an “extra” or additional costs or benefits. Almost every decision we make involves weighing marginal costs and marginal benefits since when making these decisions in a rational fashion we must compare the two choices and what marginal costs and benefits that each choice represents when compared to the other since we have limited resources we cannot always chose both options. In a decision I made in December of...
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