Question

- What is the relationship between opportunity costs and willingness to pay??

- If a company in a competitive operates at a loss, what determines if they continue producing or stop producing?

- What concept does the following situation illustrate? A coal-fired power plant emits excessive carbon dioxide. In its optimization, the amount of carbon dioxide that it emits is not part of either its benefits or costs. However, increased carbon dioxide emissions does cause major problems for earth’s climate systems.

Answer 1

1.

Opportunity cost refers to the cost of foregone alternative.

Willingness to pay refers to the amount a consumer is willing to pay to buy the product. It is basically how much the consumers value the product.

Consumers value the product based on how much they are letting go. That is, how much value of goods or utility they are letting go to buy this particular good or take this particular decision. This makes up their willingness to pay for the good, which is derived on the value of their foregone alternatives or the opportunity cost.