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General Asylum General audio topics that don't fit into specific categories. |
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General Asylum General audio topics that don't fit into specific categories. |
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In Reply to: Opportunity cost is the economic concept that applies here posted by Richard BassNut Greene on February 20, 2006 at 08:06:58:
RBN,You’re close, however seemed to have confused the relationship between the law of diminishing returns and opportunity cost. Opportunity cost is a result of the misallocation of resources as you move along the decreasing slope of the marginal revenue curve or diminishing returns.
Definitions of Opp Cost:
1. Opp cost is the next best alternative which is foregone whenever an economic decision is made
2. The cost of doing an activity instead of doing something else - applied to the time involved in unproductive activities.
3. The value of the best alternative use of a resource. This consists of the maximum value of other outputs we could and would have produced had we not used the resource to produce the item in question.
An appropriate example of opportunity cost in Audio would be "do I spend $5k on a new amplifier, or should I take my family on vacation to Jamiaca" (This example assumes doing both is not an option and remember from Econ 101 that all resources are limited) Or to your example, if in fact the Law of DR applies to audio then you would have an opportunity cost associated with upgrading from a $15k amp to a $20k amp since the marginal gain will be small, you could have used that $5k for something else.
I am not one who believes more expensive is better - in fact quite the opposite. However, what you describe above is diminishing returns - not opportunity cost. The two are interrelated since as you continue forward on the diminishing marginal revenue curve you begin to realize opportunity cost on applied resources due the misallocation of those resources. Remember, opportunity cost as it relates to this discussion is a result on diminishing returns. See – if DR did not exist, then you would not experience any opportunity cost because the return on using $5k to upgrade from a $15k amp to a $20k amp would yield the same return as spending your $5k anywhere else in the chain. If you do not agree with that last statement, then DR must exist.
The idea of diminishing returns as it relates to Audio is sound! (No pun intended)
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Follow Ups
- Re: Close - but not quite - groove 02/20/0612:11:47 02/20/06 (1)
- I'm glad I didn't take your economics class -- I'd still be in college! - Richard BassNut Greene 16:47:00 02/20/06 (0)
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