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The Cost Of Production Theory Essay

796 words - 4 pages

When economists refer to the “opportunity cost”, they mean the alternative use of that resource. In General, the opportunity costs of choice the value of the best alternative forgone, in a situation in which should be made a choice between several mutually exclusive alternatives in conditions of limited resources.
If you spend time watching television or spend time and money going to a movie, you cannot spend that time reading a book in the library and in the case of the cinema, you cannot spend the money on something else.
All production involves a cost. This cost is not counted simply in terms of money but also in terms of resources used. The resources used in producing a good and service ...view middle of the document...

To make choices that best satisfy human wants, people must be aware of all the tradeoffs. What are tradeoffs? Tradeoffs is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. More colloquially, if one thing increases, some other thing must decrease. Trade-offs can occur for many reasons, including simple physics. The idea of a trade-off often implies a decision to be made with full comprehension of both the upside and downside of a particular choice, such as when a person decides whether to invest in stocks versus bonds.
How can the concepts of opportunity costs and tradeoffs be used to help explain how the economy works? One way is construct a simple plan – economic model. In economics, a model is a theoretical construct representing economic processes with the help of a set of variables and the set of logical and / or quantitative ratios between them. The economic model is a simplified framework designed to illustrate complex processes, often, but not always using mathematical techniques. Often, the economic model to postulate structural parameters. Structural parameters are underlying parameters in a model or class of models. The model can have different options and these options can be modified to create different properties. Methodological uses of models include investigation, theorizing, fitting theories to the...

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