As a response to several specific economic analysis questions asked by the staff of Massachusetts' Management and Information System for Occupational Education (MISOE), this paper focuses on concepts of costs and benefits required for cost-effectiveness analysis, as well as the methodology of cost-effectiveness analysis. Useful as background material for those unfamiliar with economics, this paper intends to clear up misconceptions surrounding cost-benefit analysis by a simple presentation of various conceptual issues. Topics covered include capital costs, average and marginal costs, cost sharing, and cost functions. Related documents are available in this issue as VT 018 600, VT 018 602, VT 018 606, and VT 018 810. (AG)