Thinking About Supply: The Importance of Opportunity Cost Example 6.1 Search time Total num ber of Additional num ber of (hours/day) containers found containers found 0 0 600 400 600 300 2 1,000 200 3 1,300 100 4 1,500 Chapter 6: Perfectly Competitive Supply Slide 6
MB MC Chapter 6: Perfectly Competitive Supply Slide 6 Thinking About Supply: The Importance of Opportunity Cost Search time (hours/day) 0 0 1 600 2 1,000 3 1,300 4 1,500 5 1,600 Total number of containers found Additional number of containers found 600 400 300 200 100 Example 6.1
MB MC Thinking About Supply: The Importance of Opportunity Cost Costs and Benefits 1 hour collecting cans=(600)(02)=$12 o Benefit(12)>Opportunity Cost($6) 2nd hour benefit($8)>Opportunity Cost($6) ●3 rd hour benefit(⑤$6)= Opportunity Cost($6) Chapter 6: Perfectly Competitive Supply Slide 7
MB MC Chapter 6: Perfectly Competitive Supply Slide 7 Thinking About Supply: The Importance of Opportunity Cost ◼ Costs and Benefits ⚫ 1 hour collecting cans = (600)(.02) = $12 ⚫ Benefit ($12) > Opportunity Cost ($6) ⚫ 2nd hour benefit ($8) > Opportunity Cost ($6) ⚫ 3rd hour benefit ($6) = Opportunity Cost ($6)
MM Thinking About Supply: The Importance of Opportunity Cost ■ Question What is the lowest redemption price that would induce Harry to recycle 1 hour/day? Solution o 600 containers x 1 cent=$6= opportunity cost of washing dishes Chapter 6: Perfectly Competitive Supply Slide 8
MB MC Chapter 6: Perfectly Competitive Supply Slide 8 Thinking About Supply: The Importance of Opportunity Cost ◼ Question ⚫ What is the lowest redemption price that would induce Harry to recycle 1 hour/day? ◼ Solution ⚫ 600 containers x 1 cent = $6 = opportunity cost of washing dishes
MM Thinking About Supply: The Importance of Opportunity Cost ■ Reservation Price p(△Q=6 Chapter 6: Perfectly Competitive Supply Slide 9
MB MC Chapter 6: Perfectly Competitive Supply Slide 9 Thinking About Supply: The Importance of Opportunity Cost ◼ Reservation Price p(Q) = $6
MM Thinking About Supply: The Importance of Opportunity Cost ■ Reservation Price 1 hour recycling =p(600)=$6 p=1 cent o 2 hours recycling = p(400)=$6 p=1.5 cents o 3 hours recycling = p(300)=$6 p=2 cents 4 hours recycling =p(200)=$6 p=3 cents o 5 hours recycling =p(100)=$6 p=6 cents Chapter 6: Perfectly Competitive Supply Slide 10
MB MC Chapter 6: Perfectly Competitive Supply Slide 10 Thinking About Supply: The Importance of Opportunity Cost ◼ Reservation Price ⚫ 1 hour recycling = p(600) = $6 p= 1 cent ⚫ 2 hours recycling = p(400) = $6 p= 1.5 cents ⚫ 3 hours recycling = p(300) = $6 p= 2 cents ⚫ 4 hours recycling = p(200) = $6 p = 3 cents ⚫ 5 hours recycling = p(100) = $6 p= 6 cents