What does the opportunity cost mean? Explain with a numerical example.
Answers
Answer:
What does the opportunity cost mean? Explain with a numerical example.
Answer: Opportunity Cost is something when an individual has to give up something to achieve or acquire something else. In microeconomy, the opportunity cost is also known as alternative cost and is also used in calculating cost benefits or analyzing a project in terms of best alternative while making a choice.
For example, Dev has three career offers to choose from. Job X has a salary offer of Rs 60000, job Y offer is Rs. 70000 and job Z offer is Rs. 80000. So, in this case, Devout of three offers he has to choose what is best for him.
Answer:
Opportunity cost in economics can be defined as benefits or value missed out by business owners, small businesses, organization, investors, or an individual because they choose to accomplish or achieve anything else. It helps organizations in better decision-making by showing the lost opportunity because of investing over an alternative which can be anything like shares, stock market, real estate, land, services, etc. Generally, the financial report does not show the opportunity cost because it is not only about money or monetary cost. It is also associated with the lost time invested somewhere else which is providing utility. In simple terms, it is a concept in microeconomics that tells you about the output and potential opportunities foregone.
examples
- Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it.
- At the ice cream parlor, you have to choose between rocky road and strawberry. When you choose rocky road, the opportunity cost is the enjoyment of the strawberry.
- A player attends baseball training to be a better player instead of taking a vacation. The opportunity cost was the vacation.
- Jill decides to take the bus to work instead of driving. It takes her 60 minutes to get there on the bus and driving would have been 40, so her opportunity cost is 20 minutes.