540 Midterm Essay

1291 Words Oct 8th, 2012 6 Pages
1. Opportunity costs are most simply defined as cost in terms of foregoing alternatives. This means what you potentially lose in making a choice for one thing in a decision. Stella would need to be aware that whatever resources she allocates to paying for the new car, will be removed from using them for other purposes. She should consider how much the car will cost in comparison with the other uses for her funds combined with the cost of another means of transportation. In short, for this to be a good choice, the cost of the car should be lower than the cost of the alternative uses + the cost of alternate transportation if she wishes to maximize this decision. http://wordnetweb.princeton.edu/perl/webwn?s=opportunity%20cost 2.
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In the long run an organizations fixed costs must be covered in order for the company to continue to operate and continue to make profits. If these fixed costs fail to be covered, an organization will ultimately run out of money (and most likely go out of business). In utilities some costs are often ‘sunk’ costs. Sunk costs are defined as a cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business may face, such as inventory costs or R&D expenses, because it has already happened. Sunk costs are independent of any event that may occur in the future (Investopedia) and must not be confused with other costs. The latter (sunk costs) are not considered in price and output calculations; so it is important to determine the nature of a cost to ensure it is accounted for the relevant fixed costs in pricing decisions.
Sunk cost. (n.d.). Retrieved from http://www.investopedia.com/terms/s/sunkcost.asp
5. I feel that the Appalachian Power Company (electrical company) holds an oligopoly in my area and in surrounding areas, since it is our only option for power in my area, and has many other subsidiary companies in surrounding states. I feel they hold this oligopoly since entry in the market would be very difficult, and very costly. As a general statement utility companies as a whole may hold oligopolies since government regulations may be present to govern the entry and exit of

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