Question

What are the limitations of the concept of opportunity cost?

Answer 1

Answer:

This concept has few limitations. Following are a few to name:

1. This concept is isn't applicable to the factors of production that have absolutely no alternatives.

2. The concept doesn't fit with reality. This concept is based on the assumption of perfect competition and the perfect mobility of the factors of production which is found in real life. FOP are not that easily mobile between different occupations and regions in reality.

3. The concept of Opportunity Cost doesn't take into consideration the risks and pain undergone by the entrepreneur in the production process.

4. This concept assumes that all the factors are homogeneous which is not true in reality.

Answer 2

Time taking and lack of accounting are the concept of opportunity cost.

What is the disadvantage of opportunity cost?

Time taking:

• It takes time to calculate and analyze the decisions of the business
• It has limited time to compare costs of the product

Lack of accounting:

• In opportunity costs, the costs are not accounted for the company's accounts
• It is related to events of the future that are very difficult to analyze
• It gives us chance to do better the next time