Individual Report 
AF3625 Engineering Economics
Written Assignment
Name:
Ren Chen
Student number:
14019109X
Lecturer:
Dr. Alice Shiu
Tutor:
Dr. Esther Shea
Tutorial day & time:
Friday 13:30
Group:
1
Questions:
1.1, 1.4
Number of words:
737
Submission deadline:
7 October 2014
Individual report
Question 1.1
“According to the definition of opportunity cost, the more alternatives we have given up in undertaking an action, the higher the opportunity cost.” Please make a critical comment on this statement and explain your answer using examples.
Answer:
The statement above has confused the nature of opportunity cost. As defined in the lecture slide, “The opportunity cost of an action is the value of the next-best alternative that must be given up in order to undertake that action”. That is to say, the opportunity cost is the benefit of some actions given up in order to do the current action within the same resources. The amount of the opportunity cost is measured by the value of next-best alternative rather than the amount of the alternatives. So the opportunity cost is not the sum of the mutually exclusive alternatives but the value of the next best alternative.
In each decision, we all need to make our choice. When there is more than one choice, the opportunity cost is inevitable. For instance, the farmer has a land and he wants to rear livestock. Suppose that the total time is identical, the benefit of raising a hen is $7, a pig is $10 and a duck is $9. Based on the knowledge I have mentioned above, we may conclude that the opportunity cost of these three domestic animals are $10, $9, $10 repectively.
When it comes to us, the students, we can use another example to illustrate this concept. Before entering into the university, we have the choice to decide whether we should keep on studying. In this four coming years, if we choose to study in a university, we should pay the tuition fee, lodging fee, insurance fee and so forth. Otherwise, the best way we can
Written Assignment
Name:
Ren Chen
Student number:
14019109X
Lecturer:
Dr. Alice Shiu
Tutor:
Dr. Esther Shea
Tutorial day & time:
Friday 13:30
Group:
1
Questions:
1.1, 1.4
Number of words:
737
Submission deadline:
7 October 2014
Individual report
Question 1.1
“According to the definition of opportunity cost, the more alternatives we have given up in undertaking an action, the higher the opportunity cost.” Please make a critical comment on this statement and explain your answer using examples.
Answer:
The statement above has confused the nature of opportunity cost. As defined in the lecture slide, “The opportunity cost of an action is the value of the next-best alternative that must be given up in order to undertake that action”. That is to say, the opportunity cost is the benefit of some actions given up in order to do the current action within the same resources. The amount of the opportunity cost is measured by the value of next-best alternative rather than the amount of the alternatives. So the opportunity cost is not the sum of the mutually exclusive alternatives but the value of the next best alternative.
In each decision, we all need to make our choice. When there is more than one choice, the opportunity cost is inevitable. For instance, the farmer has a land and he wants to rear livestock. Suppose that the total time is identical, the benefit of raising a hen is $7, a pig is $10 and a duck is $9. Based on the knowledge I have mentioned above, we may conclude that the opportunity cost of these three domestic animals are $10, $9, $10 repectively.
When it comes to us, the students, we can use another example to illustrate this concept. Before entering into the university, we have the choice to decide whether we should keep on studying. In this four coming years, if we choose to study in a university, we should pay the tuition fee, lodging fee, insurance fee and so forth. Otherwise, the best way we can