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Subject: microeconomics
Message:
Hi,

My questions are:

1.What is the difference between opportunity cost and marginal cost ?

2.Is marginal cost the opportunity cost for producing an incremental single unit ?
For example if we are currently producing 5 guns and 8 butter on the PPF then if want to produce 7 guns we can produce only 5 butter .Does that mean the opportunity cost for 2 guns is 3 butter and the marginal cost is 1.5 butter (because it is for a single unit)?

3.When we are considering the opportunity cost of our MBA education should tuition fees be considered in the opportunity cost or only the interest that i would have earned of that sum ?

4.Also is opportunity cost cumulative ,for example for my MBA's opportunity cost i will lose 1. my current salary,2. will pay the added interest on bank loan,3.will lose the interest that i would have earned if the tuition fees was kept in Mutual funds. So is the opportunity cost is only no.1 choice or choice 1+ choice 2+ choice 3 and what would be the marginal cost in this case?

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Dhiraj Jadhav Posted: Saturday, October 28, 2017 6:22:19 PM(UTC)
 
1.
There is a fundamental difference between opportunity cost and marginal cost
1. Opportunity cost is the next best thing that you give up to take up a particular endevour.
2. Marginal cost is additional investment that you put in to get additional benefit. You take action only when marginal benefit is greater than marginal cost

2.
Here you are just re-allocating resources, no additional investment is being done (marginal cost). So the concept does not stand.

3.
Opportunity costs have both tangible (money) and intangible (time) components. So it is not only all the money that you will ever lose but also the things that you would have done with the time you lost, here you can go as far as you imagination can take you, but at the same time it has to be realistic.

4.
For this example oddly I believe opportunity costs and marginal costs are the same because you are putting in and additional investment (opportunity cost) to get additional benefit (SPJIMR cert, lifelong opportunities)


My point of view. Hope it resolves your doubts
rajarshic Posted: Saturday, October 28, 2017 9:04:18 PM(UTC)
 
Thanks for the reply... i think you are right ...opportunity costs is something we lose and marginal cost are something we invest...The only point this creates is whenever you are investing in something we are also losing some other opportunities where we could have invested.....but i think i get what youare trying to say...
saket.aloni Posted: Monday, October 30, 2017 6:47:55 PM(UTC)
 
Question 2:
Choice 1 (5gun +8butter) choice 2 (7gun + 5butter)
I think opportunity cost of choice 2= profit of choice 2 - profit of choice 1

Marginal cost = cost incurred for producing additional guns.

Question 4:
Marginal cost of MBA would be fee + interest paid to Bank, if any.
Shruti Arora Posted: Tuesday, October 31, 2017 1:50:44 PM(UTC)
 
Question 2 - Choice 1 (5gun +8butter) choice 2 (7gun + 5butter)
If choice 1 is the base (what you are currently producing) then for choice 2 -

The opportunity cost of producing extra 2 gun is 3 butter ( which you would stop producing)

Why the cost of producing 2 guns is marginal cost? isn't this the opportunity cost for 3 butter?

Question 4 - why interest paid to bank is marginal cost? isn't the interest rate is fixed?

Let's consider the example mentioned in module - Why do airlines sell the last tickets at below avg cost ?

It's because the fixed cost of Air bus, fuel, employee salary etc. are not going to change, but carrying an extra passenger at low fare will be an additional contribution to the profits. isn't this the Marginal cost?

This is my point of view.