Wednesday, July 19, 2006

Getting the Most for Your Money

While at a store today I overheard someone wishing he had more interests, as they don't cost any money, such as watching soccer. No, said another, you have to pay monthly bills electricty and cable to watch soccer.

I'll agree with electricity, assuming the opportunity cost uses less energy, but if this stranger already has cable then on a monthly basis, using it more makes it cheaper.

On the surface, this seems very strange; cable bills remind constant month-to-month and isn't effected by how much you use it. But on the margin it becomes cheaper the more you use it. If I watch 10 hours of cable a week and then discover a new show which ups my total to 11 hours, I am paying less per hour, less per interest and, most fundamentally, less per "unit" of satisfaction.

It's exactly the same concept of average fixed costs: the more the hypothetical factory is used, the less significant its initial building costs are.

Sadly, the first patron left promptly after this exchange before I could point the economics out to him.

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