Question

What is total opportunity cost . Define in minimum 250 words.

Answer 1

Total cost in economics includes thetotal opportunity cost of each factor of production as part of its fixed or variable costs. The rate at which total cost changes as the amount produced changes is called marginal cost.

You should not ignore the tax angle when changing your job.

Answered: What is opportunity cost?

As far as the definition goes, Opportunity Cost is what you have to forego when you need to make a choice between different alternative choices.

Let us leave the definition aside and have a look at a few examples to understand more:

Example 1:

You go out to have an ice cream. 

There are 2 flavors : Vanilla and Strawberry and one scoop costs $1 each.

And you have only $1, so you can only have one scoop.

You decide to have Vanilla. The opportunity cost here would be the pleasure that you would have got from consuming the strawberry ice cream but given the limited resources, you could have purchased only one of the two flavors.

Example 2: 

Assume you have $100 and have two options in front of you:

Option 1:  Put it in a fixed deposit which returns 10% after an year.
Option 2: Invest in a lemonade business (returns unpredictable)

In Option 1, you have $110 dollars at the end of the year.

Suppose you chose Option 2, and made returns of 5%  and ended up with $105. 

Here, the Opportunity cost would be: 110 - 105 = $5

Hence, the cost of the opportunity that you let go because of having to choose one alternative between the several alternatives present.

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Opportunity cost is the delta between what you’re currently doing and what you could be doing instead.

Truthfully, most people never understand this idea of opportunity cost.

I’ll give you a perfect example:

There are two kinds of professions in this world. The kind where you get paid by the hour (hours for dollars), and the kind where you create something once but then get paid on residual.

I grew up in a very wealthy neighborhood—top 1% of the United States, and easily top 0.5% of the world.

Most of these successful families are the result of “hours for dollars” jobs: doctors, lawyers, bankers, etc. They make great money while they’re clocked in, but their income halts as soon as they stop showing up to the office.

Having watched my own father, a surgeon, work tirelessly for my entire life, I have have taken it upon myself to reach out and learn from those who achieved the same or much greater levels of monetary success, but actually work less. After all, what good is a mansion and a driveway full of sports cars if you’re too busy to enjoy it?

What I’ve learned is the primary difference between those that sit in the top 1% of income earners and those that live in the top .01% think about their resources differently.

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HOPE IT HELPS you

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