Quick Answer: What Is Opportunity Cost And Its Importance?

What is opportunity cost explain with example?

Opportunity cost is the profit lost when one alternative is selected over another.

The concept is useful simply as a reminder to examine all reasonable alternatives before making a decision.

For example, you have $1,000,000 and choose to invest it in a product line that will generate a return of 5%..

What is the other name of opportunity cost?

Economic costThe alternative name of opportunity cost is Economic cost.

What is opportunity cost diagram?

Definition – Opportunity cost is the next best alternative foregone. If we spend that £20 on a textbook, the opportunity cost is the restaurant meal we cannot afford to pay. If you decide to spend two hours studying on a Friday night. The opportunity cost is that you cannot have those two hours for leisure.

What is the opportunity cost of a decision?

What Is Opportunity Cost? The opportunity cost (also called an implicit cost) of a decision is the value of what you will lose or miss out on when choosing one possibility over another.

Which of the following is the best example of opportunity cost?

Brian. Opportunity cost is the loss of the potential gain from other options when one option is chosen. An example of a situation that qualifies as opportunity cost is the scenario in which there is a car and a bike that you want to buy. You decide to buy the car instead of the bike.

What is the significance of opportunity cost?

Opportunity cost is a key concept in economics, and has been described as expressing “the basic relationship between scarcity and choice”. The notion of opportunity cost plays a crucial part in attempts to ensure that scarce resources are used efficiently.

Why is opportunity cost important to firms?

The cost of the any entity or the commodity can be produced by the forgoing production of another communicative commodity. This is useful for determining the relative cost of the different items. It is also primarily used for the efficient allocation of the resources.

What is an example of opportunity cost in your life?

When the government spends $15 billion on interest for the national debt, the opportunity cost is the programs the money might have been spent on, like education or healthcare. If you decide not to go to work, the opportunity cost is the lost wages.

Is opportunity cost a real cost?

Answer and Explanation: The real cost is the price paid by the consumer for consuming a good. Opportunity cost is the foregone cost of the next best alternative present in…

What is opportunity cost in economics of education?

An opportunity cost is defined as the value of a forgone activity or alternative when another item or activity is chosen. … For example, to define the costs of a college education, a student would probably include such costs as tuition, housing, and books.

What is opportunity cost easy definition?

Opportunity cost is the return of a foregone option less than the return on your chosen option. Considering opportunity costs can guide you to more profitable decision-making. You must assess the relative risk of each option in addition to its potential returns.

What are the limitations of opportunity cost?

The main limitations of the concept of opportunity cost are as follows: The concept is not applicable to factors of production which are specific, means, factors which can be put to only one use. A particular factor has no alternative use.

Is life priceless opportunity cost?

In economics, opportunity cost is defined as the cost of not choosing the next, best alternative for your money or time. Everything in life has an opportunity cost. If you want to go to the movies with friends it means you can’t stay home and read a good book.

What is opportunity cost in economy?

When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can’t spend the money on something else.

How is opportunity cost calculated?

Opportunity cost is the value of the next best alternative or option. This value may or may not be measured in money. Value can also be measured by other means like time or satisfaction. One formula to calculate opportunity costs could be the ratio of what you are sacrificing to what you are gaining.

Is opportunity cost good or bad?

Benefits. Incurring opportunity costs is not inherently bad, as they do not detract from business decisions; instead, opportunity costs often enhance the decision-making process. … Businesses engage in this type of decision-making to ensure the benefits of their decision are always greater than the cost of an alternative …

Can opportunity cost zero?

Opportunity cost can be zero in the case where there is no alternative available, say, for example, for a student there is no alternative for studying, here the student has to study either by hooks or by crooks. Therefore, in such cases where their are no alternatives available, theopportunity cost is zero.

What is another word for opportunity?

What is another word for opportunity?occasioncircumstancefortuitygogolden opportunityhappeningphaseplacepointrun43 more rows