Let’s say we’ve been

hanging out in scenario E for a bunch of days. On average, we’ve been

catching one rabbit, but gathering 280 berries. We were in, I

guess, a berry mood. So this is scenario

E right over here. But now all of a sudden, we’re

in the mood for more protein. So let me write down,

we are in scenario E. And we’re in the mood

for more protein. And so we want to think about

what are the trade-offs if we try to catch more rabbits? So what I want to

do– I want to say, if I want to catch

1 more rabbit, what am I going to

have to give up? So if I catch one

more rabbit– so I go from 1 rabbit on

average to 2 rabbits a day. So I’m really going

from scenario E to scenario D. What

am I going to give up? So this is plus 1 over here. Well, I’m going to

give up 40 berries. And you can see it

visually right here. If I try to get 1

more rabbit, I can’t go into this impossible,

this unattainable part right over here. I have to stay on the production

possibilities frontier, sometimes abbreviated as PPF. Or I guess the acronym for

it, I should say, is PPF. But if I want 1 more rabbit,

the production possibilities frontier drops off, and I

will have to give up 40 fruit. So 1 more rabbit means

that I have a cost. So I have to give up,

on average, 40 berries. And the technical term for

what I’ve just described is the opportunity cost

of going after 1 more rabbit is giving up 40 berries. So let me write this down. The opportunity cost of

1 more rabbit– and this is particular to

scenario E. As we’ll see, it’s going to change depending

on what scenario we are in, at least for this example. So the opportunity

cost of 1 more rabbit is 40 berries, assuming

we are in scenario E. 1 more rabbit, I have

to give up 40 berries. And another term when we

talk about the opportunity cost of going after–

after producing I guess you could say– the

operating cost of producing 1 more rabbit here, when we

talk about the opportunity cost of producing 1 more

unit, that’s sometimes called the marginal cost. So this right over

here, you can also view it as the marginal cost. In the context of

this video, our costs are in terms of the

thing that I’m giving up, the opportunity

that I’m giving up. In other scenarios, you’ll

see sometimes a marginal cost be given in actual monetary

units, like dollars or whatever else. What was the cost of

producing that extra unit, that extra widget,

right over there. But let’s make sure we

understand opportunity cost. So that’s when we were sitting

in scenario E, the opportunity cost of 1 more rabbit. But what’s the opportunity

cost– let’s say, we’re tired of eating meat. We’re sitting in

scenario E, and we want to become

vegetarians altogether. So we want to go to scenario F–

essentially not eat any rabbits and eat as much

fruit as possible. So another thing you

could ask in scenario E is the opportunity

cost of– and just to make the numbers

easier– I’m going to say opportunity

cost of 20 more berries is, well, I’m going

to give up a rabbit. So over here, what we’re

doing is we’re saying, OK, I want to increase

my berries by 20, but to do that, I have to

decrease my rabbits by 1. So the opportunity

cost– assuming we are in scenario E– the

opportunity cost of 20 more berries is 1 rabbit. Now this right over here

is not a marginal cost, because I’m talking about the

cost of 20 more units, not just 1. If I want to write this as a

marginal cost of 1 more berry, then I could just say, well

if 20 berries is 1 rabbit, you could essentially

divide both sides by 20. So 1 more berry– and I’ll

assume, for those of you who want to get technical, that

it’s somewhat linear right over here– 1 more berry if

we divide both sides by 20 is 1/20 of a rabbit. So if I go for one extra

berry sitting in scenario E, on average I’m going to

get 1/20 less of a berry. And when I phrase

it this way, it is being phrased

as a marginal cost. Now for those of you who want

to get a little technical, this is a curve right over here. So it might not be exactly this. Well, I don’t want to get

too technical for the sake of this one right

over here, this is a safe way to think about it. The opportunity cost of 20

more berries is 1 rabbit, but if you assume

that this is somewhat linear right over here–

it’s not so curved, it’s somewhat of a line

between those 2 points– then the opportunity cost of

1 berry is 1/20 of a rabbit. Or the marginal cost of an

extra berry is 1/20 of a rabbit. And we can do it at different

points of this curve, and I actually

encourage you to do. Based on the data that we

have in this table that we constructed in the last

video and maybe this curve, think about what

the opportunity cost is in the different scenarios. If you’re in scenario B and

if you want an extra rabbit, how much is that going to

cost you in terms of berries? Or if you want more

berries, what’s that going to cost you

in terms of rabbits?

## 9 Comments

Very helpful

how does this guy literally know every subject lol

I still confuse about opportunity cost

I read a lot about it but all of them gave me different ideas ðŸ˜

It mean the alternative I choose it to take what I want like a production but i will give up another something like a money ?

Or i have to choose between a highest-valued and another cheaper, but I donâ€™t know what the interest i will get it ?

Wich one is right !?

so marginal cost is just the number of one of the opportunity cost?

Is there a way to take tangents of lines like this with just raw data? Or must they always be graphed with traditional numeration?

Ä± understand in just 2 mÄ±nutes. Thanks alot.

Gotta love when your instructor sends you to these videos to explain the topic. Pay tens of thousands of dollars for a college education and they send you to YouTube to learn it.

woohoo khan academy doesn't suck

O lawd, I'm in trouble. Help me these next 5 weeks!

Great content! Thanks for uploading!