Question

Explain the importance of opportunity cost to a firm

Answer 1

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Modern economists have rejected the labor and sacrifices nexus to represent real cost. Rather, in its place they have substituted opportunity or alternative cost. The concept of opportunity cost occupies an important place in economic theory. ... The opportunity cost of anything is the alternative that has been foregone.

Answer 2

            Importance of opportunity cost to a firm

• The cost function is defined as the entity which has the relationship between the cost and the output.
• The cost function is the derivative of the productive functions.
• The concept of opportunity cost was developed by a Australian economist.
• 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.