28

prices should have already been set to maximize the trade off between profit-per-sale and volume sold But profit-per-sale depends on costs, which depends on the theft numbers, so if theft increases, the equation changes.


17

What you're describing is retail shrink. It is taken into consideration when setting prices. A business will typically have consultants come in, measure their shrink to be X percent, and prices will be adjusted accordingly. Back when I worked in retail, there was a big printout in the break room informing everyone on shrink. The 5 kinds of shrink outlined on ...


9

Price is set by the competition In general, the prices are set by the supply and demand for the whole market. If a merchant sells the same goods for a higher price than competitors without a corresponding advantage (location, better service, convenience) then people won't buy these goods and the merchant will earn less profit as the decrease in volume will ...


9

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

Your reasoning seems to be this: Under the old conditions, a widget seller calculates that the profit-maximizing price of a widget is \$1. Conditions now change (e.g. because of increased theft). Under these new conditions, she should not change her selling price, because of her earlier calculation that \$1 maximizes profits. But the above reasoning is ...


7

The simple answer is that they don't think they would make as much money. In many countries illegally downloading music or movies is getting harder and harder. The recording industry has achieved this by persuading governments to instruct the ISPs to block torrent sites, torrent proxy sites and sites that list proxy sites completely so no one can access ...


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

In economics, we argue that there is only one correct way to think of costs. And so, the adjectives economic or opportunity in front of the word cost are actually superfluous — the terms cost, true cost, economic cost, and opportunity cost are all exact synonyms. Note. If they are superfluous, then why do we use these adjectives? One reason is to strongly ...


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 ...


3

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 ...


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

Definition. The opportunity cost (OC) of any alternative is the value you place on the best of the forgone alternatives. If we adopt the above definition (and I do), the OC of $B$ is the value of $A$, which is simply $\$100$. With the above definition, the alternative you choose ($B$ in this case) is completely irrelevant when calculating its OC. All that ...


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

Keat is mistaken. Most economists agree with Mankiw. The term oppportunity cost includes all costs, including explicit out-of-pocket ones and any other implicit ones. As Henderson states: The word “opportunity” in “opportunity cost” is actually redundant. The cost of using something is already the value of the highest-valued alternative use. But as contract ...


2

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, ...


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 ...


1

I see your point. However, theft in effect increases the cost of purchase, which changes everything. The easiest way to get to the bottom of the answer is thinking of a simple scenario but in extremes. A shop sells one item only, has no thefts, purchases the items for 10 each, and sells them for 15 (making 5), and sells 10 per hour (making 50 profit per hour)...


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

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

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 ...


1

Opportunity cost is what you forgo for choosing something else. Commonly thought of in economic terms as follows: Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made. This cost is, therefore, ...


1

The opportunity cost of any decision is the value of the next-best alternative forgone. So in this case, if you choose \$40, your opportunity cost is \$30, because that's the value of the next-best alternative forgone. (Implicit assumption: These are your only three alternatives and you must choose one of these three.)


1

The thing you are missing in your calculation is that the roubles the machine produces in year 1 are more valuable than those in year 2. Think about 2 different machines with different production schedules Machine 1 - 440 roubles year 1, 0 in year 2 Machine 2 - 0 in year 1, 440 in year 2 Using your calculation the value of both of those machines would be ...


1

Interesting! My guess is that: A) Fast food places are in the business of solving the masses nutricional needs (low margins!), while other restaurants are more in the business of selling a special experience that you could do without (high margins!): Article mentioning lower margin breakfast foods. B) Because of the above, people will go to a fast food ...


1

This question makes a hidden assumption: that all diners are on the same circadian rhythm. A significant portion of the US population works nights, spans time zones, etc. For example, truckers. That's one answer, that addresses the market. There's also the question of inventory logistics for the restaurant. Most eateries have to do extensive prep for a ...


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