13

It's called a Principal-Agent Conflict. The RIAA/MPAA act as agents on behalf of the people who actually produce content (and consequently end-consumer value). To maintain relevance to their principals', the RIAA/MPAA must signal value to them (i.e. claim loudly and repeatedly that they do something good for them [regardless of the validity of that claim]). ...


8

The concept of Opportunity Cost is not used in order to net the direct benefit of a choice, but in order to compare it to the direct benefit of alternative choices. How do we go about using it in Economics? 1) We gather all available alternative choices, say $A, B, C$ 2) We measure (in whatever way appropriate for the situation) the benefit from each ...


7

What I don't see here is an economic model, however rudimentary, that will allow us not to definitely answer the question but to clarify what are the critical issues. So here's one (totally rudimentary): Consider a work of digitized and mass-commercialized content $x$, like a song, a movie, or a book. Assume that in the short run, demand (desire) for it is ...


6

There is a crucial detail missing in the scenario you describe. Is the worker working a five day week (and no more) because that is what their terms of employment require? Or do they have the option of doing additional paid work (at the same rate, and for as many hours as they wish) at weekends, but on this occasion have opted to work only five days in the ...


4

Opportunity cost is simply the value not obtained of the highest value alternative. It can be positive or negative; meaning it doesn't really make sense to define the opposite as opportunity profit. There is only two ways to go about it rationally, either you are profiting from doing something, or you are not profiting by not doing something, which is ...


4

Firstly there are services like this in Spotify, and even radio and tv, but it sounds like you are talking about downloading the material with ads in. That causes a problem. Revenue from ads relies on giving many ads to many people. Each time you listen to a song the provider needs to be able to provide a new ad. If you download a song or book with ads ...


3

First off some terminology: opportunity cost are not necessarily avoided profit. Profit is a term that is used for firms, but opportunity cost does not just apply to firms. Moreover as @clinical coder points out the opportunity costs are not avoided profits but the value of the best alternative forgone. For certain firm decisions that may be forgone profit, ...


3

Recall that Oppurtunity Cost is referred to the benefit forgone by choosing the other option. In your example of a single player game, opportunity cost exists since the architect is completely in control of the benefit he receives. In this case the opportunity cost for signing the contract is 0 (and conversely -40 for not signing the contract). However ...


3

A useful framework for analysing personal activities involving both monetary and time costs is a household production model. A simple example of such a model (adapted from Chiappori & Lewbel (2015) pp 411-2) is below. Note that a "household" could be one person (the assumption that members of a multi-person household cooperate to maximise their joint ...


2

Isn't this mostly an issue of pricing at a level where most people feel it's worth paying to avoid the hassle (and potential legal issues) of piracy? Take music singles for example: when I was a teenager (late 90's), a CD single cost £3.99 in the UK. When it became possible to download songs for free that someone else had ripped and uploaded, many people ...


2

The market value of the inputs are determined by the most lucrative possible investment opportunity. Yes, the concept of market value is a simplification. If your firm alone can make the investment then the market is not functioning in a competitive way and hence is unable to assign prices in an informative way. If other firms cannot make the same investment ...


2

I will only address e-books (and other text), and discuss the technical issues. These technical issues make e-books distinct from other electronic media. An e-book is a compressed file that contains what are essentially web pages (each a “chapter”), with meta-data in XML. Typical size is small (a couple megabytes), with size possibly increasing due to images ...


2

Since you are presumably not working 24 hours a day, your free time clearly has an economic value > 0 to you (otherwise driving an Uber or solving tasks on Amazon's MTurk would be preferable to having any free time at all). So working on the weekend most definitely still has an opportunity cost. The only question remains how to price this opportunity cost ...


2

To keep things simple, let's assume that inputs to production other than capital goods are constant over time, and that production technology is regarded as one of those inputs (ie there is no technical progress). Let's also assume that the production function is such that output (across the whole range of the production possibility frontier) is an ...


2

Economic profit I think there are some problems with the formulation in your question, first you heavily focus on opportunity cost but note accounting profit does not even properly capture all revenue firm gets. I will first focus on economic profit more broadly and at the end go back to opportunity cost. Following Varian Microeconomic Analysis pp 24 (...


2

First of all its all just joke so you should not read too much into it. Most jokes are based on some false/overly simplified premise. You are right: There are two problematic claims here: Being offered a choice between two identical packages of M&Ms is equivalent to being offered nothing. This is erroneous argument if for no other reason than that in ...


2

The joke is conflating the value of the item you get and the value of the option to determine which item you get. Suppose I value the Snickers at $\\\$.4$ and the M&Ms at $\\\$.75$. If I am offered a Snickers for free my economic profit is $\\\$.4$. If I could get the additional option to choose between the Snickers and a bag of M&Ms, rather than ...


1

This would only work if the resources have literally no alternative uses (e.g. think of mana that according to the Judeo-Christian mythology could be only just used for immediate nourishment or it would just quickly spoil and bred worms, hence it had no other uses and could not even be saved or traded). However, this does not hold in traditional PPF analysis....


1

Considering opportunity costs as the potential benefits an individual misses out on when choosing one alternative over another. So if you choose going to the concert your benefit (utility) is 10 (50 you value - 40 actual costs). Then if you go to the football match you lose 10, the opportunity cost of the football. If you have already bought the football ...


1

Note that the opportunity cost is what you gave up to get it, not necessarily the price of what you gave up to get it. Your opportunity cost is not what you perceive as the value of the rock concert since you haven’t even bought the tickets to the concert yet. If you had bought the tickets to the rock concert already, then the opportunity cost of going to ...


1

Opportunity costs occur for all suppliers. The lowest price at which supply occurs (agents willing to sell) is just above the lowest opportunity cost of the suppliers. I would not describe it as a point on the supply curve. Because you will not offer something for sale unless it is greater than you opportunity cost. It is important to note that opportunity ...


1

I think the point that the author was trying to make was that opportunity cost refers to the "best alternative use" of something. The measure is used to understand marginal decision making. Suppose you have just purchased an Oven which can either bake cakes or bake bread. Now if you decide to bake cakes, your opportunity cost is the number of loaves of bread ...


1

You have it dead on! There opportunity cost is the next best alternatives that you forgo when you decide (in this example) to go to college. Because there is always some opportunity cost to every decision, economists say that there is no such thing as a free lunch


1

Probably the most useful aspect of the concept of "opportunity cost" is to distinguish between choice problems where a particular choice is available, but the alternatives differ. The concept of opportunity cost stresses that when we make a choice of some action, we forego alternatives, and so the gain from that action is the difference between the benefit ...


1

Your answers in the first and second questions are correct, as another post noted. However, the last question cannot be answered: we would have to know what would be the number of Toyota produced when production of Lexus is zero, in order to answer that. By the way the Labels in your graph are wrong - it should read "Lexus" in the vertical and "Toyota" in ...


1

As other answers clarified, the Opportunity Cost has been defined as the value of the best alternative foregone. Assume that the gain in activity B will be positive, say USD 20. This too does not affect the Opportunity Cost, it does not make it equal to $100-20 = 80$. In other words, the Opportunity Cost does NOT reflect the "net change of financial ...


Only top voted, non community-wiki answers of a minimum length are eligible