You have 2000 as your packet money. You can deposit this money in a bank and gets 2200 after an year. However you have two other option. 1 lend this money to your friendwho is ready to pay 2100 after an year. 2 keep the money with you as cash in hand. Question what is opportunity cost of lend money to friend
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Opportunity cost of production of a commodity refers to the cost which the producer has to sacrifice in terms of the next best alternative which could be produced out of that cost in order to produce every unit of the given commodity. Therefore, the cost of keeping Rs. 1000 as cash in hand will mean a sacrifice of Rs. 100 which we would have got on depositing the money into bank.
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