ECON1210

Tutorial 1 – Cost &

Benefit Analysis
 Roadmap
1. Course overview

2. Equipment checklist

3. Key concept recall marginal benefit and marginal cost, economic

surplus, opportunity cost

4. Example questions 7 example questions, 4 past paper exam questions

5. Attendance exercises
 Something about GHIJ TAs
Mr. Chris YANG Jiacheng ([email protected])
Ms. Rebecca REN Xingyu ([email protected])
Ms. Dora XU Yueling ([email protected])
Mr. Frankie SHEN Boyu ([email protected])
Ms. Louise LIU Shuo ([email protected])

• Weekly Tutorial
(except during reading week)

• Consultation hours
ü Teacher-specific Moodleà Scheduler
ü Feel free to schedule other consultation sessions (via email)
 Assessments
• Weekly online quizzes (20%)àonly best 10 quizzes will be taken into account
• Regular quiz: Each question allows for multiple attempts, but an incorrect answer will result in a
deduction of 33.3% of the marks (deadline: September 13th, 10:30pm for regular quiz 1)
• Late quiz (within 2 days after the regular quiz deadline, e.g. deadline: September 15th, 10:30pm for
late quiz 1): available to all, 10% penalty
• Final quiz score = Max(Regular, Late-10)

• Midterm exam (30%), no cheat sheet allowed

10-11:30am, October 26, 2025 (Sun) àIN-HALL, pen & paper exam
• Final exam (50%)

• Tutorial participation: limited-timed, a bonus of up to 2 points will be given to

students who have engaged in tutorial activities and (up to 5 points for
subclass D students given there is no scheduled lecture for them)
Note: Attendance quiz(Subclass Moodle Page) is different from weekly quiz
(Common Moodle Page)!!!
 Key concept recall: marginal benefit & marginal cost
Price/Costs
• Marginal = additional

• Should I do the n-th unit of activity x?

• Yes, if MB(n-th unit) ≥ MC(n-th unit)
• No, if MB(n-th unit) < MC(n-th unit)
• E.g. MC=Price

• price of hamburger: $80

• MB from 1st hamburger: $200 MB
• MB from 2nd hamburger: $150 --- we would stop after finishing the second hamburger Units
• MB from 3rd hamburger: $50

• MB is decreasing & MC is increasing

• We think at the margin

 Key concept recall: resources allocation rule
• General rule : allocate the additional unit of
resources to activities with the highest marginal
benefits/lowest marginal costs.

• When the resource is perfectly divisible and

when the MB of one activity is not always
higher than the others, allocate resources such
that MB(A1)=MB(A2)=…=MB(An)
 Key concept recall: economic surplus

• Total economic surplus = Total benefit – Total (variable) cost

• We would not do something if TC>TB (negative total economic surplus)

• As rational individuals, we maximize total economic surplus, instead of

total benefits
 Key concept recall: opportunity cost
• Definition: value of the best alternative forgone, given unlimited resources

• Notes:
• Only the best alternative option forgone is relevant
• Full cost should be considered in determining the opportunity cost
• Full cost = Money cost + Non-money cost
1.Tutorial
• Full cost = Explicit cost + Implicit cost
• Explicit cost: direct monetary payment 2. Working in
• Implicit cost: the value lost from forgoing the alternative Mcdonald
• Sunk costs should be excluded from cost-benefit analysis. 3. Playing video
games
Example question 1
Example question 1

• The objective is not to maximize total benefit, but rather to maximize total economic
surplus. Therefore, Statement 1 is incorrect.

• We should continue consuming as long as the marginal benefit (MB) is greater than
or equal to the marginal cost (MC). At equilibrium, we have the equation:
MB(n) = MC(n)
Price/Costs
40 - 2n = 30

40-30=2n
n=5 MC=Price

Therefore, Statement 2 is incorrect as Jane will consume 5 cups. MB

Units

• Total benefit: TB=40*5-5^2=175 OR TB=AB*n=(40-5)*5=175

• Total economic surplus: TB-TC=175-5*30=25
Example question 1
Example question 2
Example question 2

1. Construct marginal benefit table:

2.We should assign workers to districts that give the highest marginal benefit.
Example question 2

• 1st worker: HK Island

• 2nd worker: Kowloon
• 3rd worker: New Territories
• 4th worker: Kowloon
• 5th worker: Kowloon
• 6th worker: Kowloon
Example question 2
Example question 3
Michael can choose among three different jobs. His choice of preference is as follows:

(I) being a professor at the University of Hong Kong

(II) being an advisor at the Hong Kong Monetary Authority

(III) being a sales representative at Utopia Electric, an international consumer product company.

Assuming his preference (the ranking of options) remains unchanged, which of the following will increase his
opportunity cost of being a professor at the University of Hong Kong?

A. Hong Kong Monetary Authority requires its advisors to work longer hours
B. Hong Kong Monetary Authority decides to increase the wages of its advisors
C. The students in the University of Hong Kong are becoming more rebellious
D. Utopia Electric decides to increase the bonuses for its sale representative
E. Opportunity cost is determined by preference and thus cannot be changed by external factors
Example question 3
Michael can choose among three different jobs. His choice of preference is as follows:

(I) being a professor at the University of Hong Kong

(II) being an advisor at the Hong Kong Monetary Authority

(III) being a sales representative at Utopia Electric, an international consumer product company.

Assuming his preference (the ranking of options) remains unchanged, which of the following will increase his
opportunity cost of being a professor at the University of Hong Kong?

Opportunity cost of option 1= value of option 2

A. Hong Kong Monetary Authority requires its advisors to work longer hours (cost of II ↑)
✓ B. Hong Kong Monetary Authority decides to increase the wages of its advisors (value of II ↑)

C. The students in the University of Hong Kong are becoming more rebellious (value of I ↓)
D. Utopia Electric decides to increase the bonuses for its sale representative (value of III ↑)
E. Opportunity cost is determined by preference and thus cannot be changed by external factors
Example question 4

Your family is taking a week-long summer vacation at a cabin in the mountains next to a lake.
You have been able to get time off work at the job where you normally work 40-hours a week at
$12 per hour. Your parents are paying $1,500 for the cabin rental and each child (including
yourself) will pay $200 for food and other related costs. You currently have your own rented
apartment with a monthly rent of $300 and typically pay $75 per week for food. The travel cost
to get to the cabin and back will cost you $50 more than your usual weekly travel expenses.
What is YOUR total opportunity cost of the summer vacation?

A. $480
B. $655
C. $730
D. $955
Example question 4
Your family is taking a week-long summer vacation at a cabin in the mountains next to a lake.
You have been able to get time off work at the job where you normally work 40-hours a week at
$12 per hour. Your parents are paying $1,500 for the cabin rental and each child (including
yourself) will pay $200 for food and other related costs. You currently have your own rented
apartment with a monthly rent of $300 and typically pay $75 per week for food. The travel cost
to get to the cabin and back will cost you $50 more than your usual weekly travel expenses.
What is YOUR total opportunity cost of the summer vacation?
Solution
• Work: 40 hours a week at $12 per hour à $480
• Cabin fee: $1,500 (not paid by you)
• Food: $200 during holiday, $75 in typical days à 200(amount paid) – 75 (amount saved)= $125
• Extra travel cost: $50

• Your OC = $(480+125+50) = $655

Example question 5
Example question 5

Opportunity cost
= ($48,000 + $ 8,000 +$4,000 + $800) + ($24,000 - $ 8,000)
Example question 5

Opportunity cost
= ($48,000 + $ 8,000 +$4,000 + $800) + ($24,000 - $ 8,000)
Example question 5

Opportunity cost
= ($48,000 + $ 8,000 +$4,000 + $800) + ($24,000 - $ 8,000)
Example question 5

Opportunity cost
= ($48,000 + $ 8,000 +$4,000 + $800) + ($24,000 - $ 8,000)
Example question 5

Opportunity cost
= ($48,000 + $ 8,000 +$4,000 + $800) + ($24,000 - $ 8,000)
Example question 5

Opportunity cost is the value of best alternative forgone.

Opportunity cost = Explicit cost + Implicit cost

= ($48,000 + $ 8,000 +$800 + $4,000) + ($24,000 - $ 8,000)

= $76,800

The other expenses are sunk costs, which should not be incorporated.
Example question 6

Mary bought a ticket to a tennis match and Jack bought a ticket to a concert, both
events will be held at the same time, tickets sell for $250 for the match and $600 for
the concert, and the tickets are REFUNDABLE. Jack offers to directly swap tickets with
Mary. Suppose Mary values the match at $500 and the concert at $400. In this case,
Mary will:
A. swap
B. not swap
 Example question 6

Mary bought a ticket to a tennis match and Jack bought a ticket to a concert, both events will be
held at the same time, tickets sell for $250 for the match and $600 for the concert, and the
tickets are REFUNDABLE. Jack offers to directly swap tickets with Mary. Suppose Mary values
the match at $500 and the concert at $400. In this case, Mary will:
Go to the concert: 400

Swap(having concert ticket at hand)

Get the refund: 600
Options available
Watch the match: 500
not swap (having match ticket at hand)

Get the refund: 250

Since the tickets are refundable, Mary has four options available: swap&go to the concert,
swap&refund, not swap&watch the match, not swap&refund. To maximize her total
economic surplus, she will swap&refund.
Example question 6

Mary bought a ticket to a tennis match and Jack bought a ticket to a concert, both
events will be held at the same time, tickets sell for $250 for the match and $600 for
the concert, and the tickets are REFUNDABLE. Jack offers to directly swap tickets with
Mary. Suppose Mary values the match at $500 and the concert at $400. In this case,
Mary will:
A. swap ✓
B. not swap
Example question 7

Mary bought a ticket to a tennis match and Jack bought a ticket to a concert, both
events will be held at the same time, tickets sell for $250 for the match and $600 for
the concert, and the tickets are NON-REFUNDABLE. Jack offers to directly swap
tickets with Mary. Suppose Mary values the match at $500 and the concert at $400.
In this case, Mary will:
A. swap
B. not swap
 Example question 7
Mary bought a ticket to a tennis match and Jack bought a ticket to a concert, both events will be
held at the same time, tickets sell for $250 for the match and $600 for the concert, and the
tickets are NON-REFUNDABLE. Jack offers to directly swap tickets with Mary. Suppose Mary
values the match at $500 and the concert at $400. In this case, Mary will:
Go to the concert: 400

Swap(having concert ticket at hand)

Get the refund: 600
Options available
Watch the match: 500
not swap (having match ticket at hand)

Get the refund: 250

Since the tickets are non-refundable, Mary only has two options available: swap&go to the
concert, not swap&watch the match. To maximize her total economic surplus, she will not swap.
Example question 7

Mary bought a ticket to a tennis match and Jack bought a ticket to a concert, both
events will be held at the same time, tickets sell for $250 for the match and $600 for
the concert, and the tickets are NON-REFUNDABLE. Jack offers to directly swap
tickets with Mary. Suppose Mary values the match at $500 and the concert at $400.
In this case, Mary will:
A. swap
B. not swap ✓
Past Exam Question 2021 Fall Final Q2
Past Exam Question 2021 Fall Final Q2
Equation 1: Budget constraint
Equation 2: MB(n) = MB(m)

𝑛 + 𝑚 = 80
!
1030 − 4𝑛 = 2570 − 19𝑚

𝑛 = 80 − 𝑚
!
−4𝑛 + 19𝑚 = 1540

• -4(80-m)+19m = 1540 à 23m = 1860 à m=80.87

• n=80-80.87=-0.87

𝑛 = −0.87
Solving, we have ! , which is not possible for negative consumption
𝑚 = 80.87

Hence, Veronica would allocate 0 dollars on salmon and 80 dollars on oyster.

Past Exam Question 2022 Spring Final Q2
 Past Exam Question 2022 Spring Final Q2
We can infer that MB(28) ≥P and MB(29) < P
Consider MB(28) ≥ P and MB(29) < P

425 – 14(28) ≥ P and 425 – 14(29) < P

P ≤ 33 and P > 19

i.e. 19 < P ≤ 33

Hence, the price per movie (P) is less than or equal to 33 dollars and more than 19
dollars
Past Exam Question 2023 Summer Final Q3
 Past Exam Question 2023 Summer Final Q3

• Economic surplus of going to Ocean Park = $(X – 200)

• Economic surplus of working as a waitress = $400+$50-$50= $400
• Economic surplus of working as a tutor = $160 × 3 +$50-$50 = $480
à No matter what the value of “X” is, Chloe prefers the tutor job to the waitress job
Past Exam Question 2023 Summer Final Q3
Economic surplus from the following three activities:
• Economic surplus of going to Ocean Park = $(X – 200)
• Economic surplus of working as a waitress = $400+$50-$50= $400
• Economic surplus of working as a tutor = $160 × 3 +$50-$50 = $480
à No matter what the value of “X” is, Chloe prefers the tutor job to the waitress job

If Chloe chooses to go to Ocean Park, then ES of Ocean Park ≥ $480.

X – 200 ≥ 480
X ≥ 680
Past Exam Question 2023 Summer Midterm Q3
Past Exam Question 2023 Summer Midterm Q3
Equation 1: MC(n) = MC(m)

Equation 2: Time constraint

330 + 3𝑛 = 270 + 5𝑚
!
𝑛 + 𝑚 = 29

3𝑛 − 5𝑚 = −60
!
𝑛 + 𝑚 = 29

𝑛 = 10.625
! !
𝑚 = 18.375

Hence, the manager would allocate 10.62 hours to Donald and 18.38 hours to Joshua.
Thank you!
(deadline for regular quiz 1:
September 13th, 10:30pm)