ECON1101 - Need help! (1 Viewer)

danielau

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Hello everyone,

Just a small question. Can someone explain to me the first pitfall: Failing to account for all opportunity costs? Using the Frequent flyer points to manilla vs using it to sydney example, which decision is better and can you help me identify how the opportunity cost, benefit etc are found? I understand the opportunity cost etc but just not this principle and don't want to fall in the pitfall! If you think you can help but don't know the example feel free to request it and I'll post the example.

Cheerios,

Just gonna post it now incase since I won't be home from work till late.

Jesleigh has 30 000 frequent-flyer points. With the mid semester break only a week away, he is still undecided about whether to fly to Manila to visit his family for the break. The round trip airfare is $500 but he has enough frequent flyer points to pay for the flights. All other relevant costs for the trip (including the opportunity cost of his time) total exactly $1000. The most jesleigh would be willing to pay for the manila trip is $1350. That amount is his benefit of taking the trip to visit his family. Jesleigh has thought hard about his options and knows that if he does not use his frequent flyer points for the manila trip he will use them for the plan trip he plans to take to Sydney later in the year to attend a friend's wedding. If the Sydney round trip airfare is $400, should jesleigh use his frequent flyer points to fly to manila for mid semester break?

I don't understand what that $1000 cost is coming from and where it comes into the decision...
 
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Trans4M

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Since you have frequent flyer points you can use it either on the Manila trip or on the Sydney Flight. In deciding whether to take an action, the benefit must be equal to or greater than the cost.

Benefit = $1350 (the max you are willing to pay)
Cost = $1000 (all your expenses for that flight) + $400 (opportunity cosst) = $1400.

Therefore you would not fly to Manila.

The $1000 is for all your general expense in Manila e.g. food etc. You are only happy to spend max $1350 on that trip. Since you are using flyer points to Manila, when you come to Sydney, you must pay for the flight which is $400. Therefore total cost is $1400 which exceeds the benefit of going.
 

ali2536

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Sorry to *chime" but if u could please help Trans4M with this Microeconomics question, question 9. :)
 

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michaeljennings

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Sorry to *chime" but if u could please help Trans4M with this Microeconomics question, question 9. :)
Neither of them are more likely to rebuy a ticket, losing the ticket and the money are sunk costs so therefore it should be excluded from their decision to buy a new ticket, if they both have enough money and both have the same preferences then they will both buy another ticket although as i said neither is more likely
 

Trans4M

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Neither of them are more likely to rebuy a ticket, losing the ticket and the money are sunk costs so therefore it should be excluded from their decision to buy a new ticket, if they both have enough money and both have the same preferences then they will both buy another ticket although as i said neither is more likely
+ 1. The principle of sunk cost applies. Since they both have the same preferences, their decision to buy the tickets will basically be the same in this situation.
 

yeem

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sorry i need help as well - i dont get how to answer problem 7 - if anyone can help id much appreciate it! :)
 

ali2536

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Neither of them are more likely to rebuy a ticket, losing the ticket and the money are sunk costs so therefore it should be excluded from their decision to buy a new ticket, if they both have enough money and both have the same preferences then they will both buy another ticket although as i said neither is more likely
+ 1. The principle of sunk cost applies. Since they both have the same preferences, their decision to buy the tickets will basically be the same in this situation.
Thaanks guys! I understand it now! :)
 

ali2536

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someone pls respond
I think we do but Im not totally sure. We basically have to do the Review questions and the Problems for Chapter 1. It doesnt matter that u have the 2nd edition because they posted the questions on Blackboard. But Im not sure if its due next week.
 

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