Chapter 9 Making Decisions Flashcards
1
Q
accounting profit
A
revenue - explicit costs and depreciation
greater than econ profit
2
Q
economic profit
A
revenue - total opportunity costs
3
Q
marginal cost
A
additional cost incurred by doing 1 more of an activity
4
Q
principal of marginal analysis
A
optimal quantity of an activity is the quantity at which marginal benefit = marginal cost
5
Q
sunk cost
A
cost that is already encountered, shouldn’t influence choice
6
Q
rational decision
A
a decision made that leads to the option they most prefer
7
Q
reasons why people make a rational decision that results is a lower profit
A
- concerns about fairness
- bounded rationality (laziness)
- risk aversion
8
Q
reasons why people make an irrational decision
A
- misperceived opportunity cost
- being overconfident
- unrealistic expectations about future behavior
- counting dollars unequally
- loss aversion (10-5 vs 5)
- status quo bias (don’t want change)
