0
pportunity cost is the cost (sacrifice) incurred by choosing one option over an alternative one that may be equally desired. Thus, opportunity cost is the cost of pursuing one choice instead of another. Every action has an opportunity cost. For example, someone who invests $10,000 in a stock denies oneself the interest that one can easily earn by leaving the $10,000 dollars in a bank account instead. Opportunity cost is not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered.
Opportunity cost is a key concept in economics because it implies the choice between desirable, yet mutually-exclusive results. It has been described as expressing "the basic relationship between scarcity and choice.
Wiki User
∙ 13y ago
Wiki User
∙ 12y agoOpportunity cost is the cost that you stand to lose when you do not take up an opportunity.
In businesses, there are numerous opportunities that come up and the person or team in-charge is left to decide whether to pursue or ignore an opportunity.
Let us say, that I run an agriculture business and see that the cost of fertilizers has suddenly fallen by 10% due to some governmental regulations. Fertilizers that were sold for $250 per 100 kgs is now being sold for $225 per 100 kgs. The fertilizer company's want the government to reverse its decision on the price cut and there is negotiations happening between the two parties.
Now, this is an opportunity for me. As a farmer, I would need to buy fertilizers on a regular basis and hence if I buy 10 bags of fertilizers right now, I will spend $2250. If the government revers its decision and the price goes back to $250 per 100 kg bag next week, I have to shell out $2500 to buy the same 10 bags of fertilizers.
So, If I had siezed the opportunity and bought fertilizers I would saved $250. Instead, if I had ignored the opportunity, I stand to lose $250 the next time I buy 10 bags of fertilizers.
This $250 that I will be losing out is called the Opportunity Cost.
Note: Opportunity cost is only applicable when an event where you stand to lose money due to not utilizing the opportunity happens. In case the government sticks to its decision on price cut and the price stays at $225 per 100 kg bag, then there is no opportunity cost involved.
Add your answer:
Earn +20 pts
Why does opportunity cost vary?
Opportunity Cost can vary depending on what you are giving up exactly.
What is the opportunity cost of the war in Iraq?
"Opportunity cost" could be opportunities for US/Iraqi contract employment for bettering their nation.
Opportunity cost of saving?
opportunity cost of saving is when you save money then economically spend from your saving this may vary to what person you are
What was the benefit of the soviet union decision to concentrate on heavy industry What was the opportunity cost and who paid it?
The opportunity cost were the consumer goods and services.
Define opportunity costs?
The cost of passing up the next best choice when making a decision. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for. Opportunity cost analysis is an important part of a company's decision-making processes, but is not treated as an actual cost in any financial statement.
Opportunity cost definition?
The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.
What describes how opportunity cost is calculated?
When a financial decision is being made, the more choices you have will help determine the best opportunity. To calculate the opportunity cost, compare each opportunity based on a similar unit of measurement. This can be cash, weight, or products. Evaluate cost by hour, day, week, or year for each option. Evaluate each opportunity by what would be gained if you chose an alternative opportunity. Add up the costs associated with each opportunity. Make your choice based on which opportunity cost is higher.
What is opportunity cost and opportunity benefit?
Opportunity cost is the cost that an opportunity presents. The opportunity benefit is the benefit of the opportunity that is being presented.
How would you calculate the opportunity cost of your college education if you lived at home and went to college full time for four years?
employment opportunity time consuming
Why are costs important in economics?
How do firms incorporate opportunity cost to calculate economic cost? discuss and give example using an explicit economic cost and an implicit economic cost.
What accurately describes how opportunity cost calculated?
When a financial decision is being made, the more choices you have will help determine the best opportunity. To calculate the opportunity cost, compare each opportunity based on a similar unit of measurement. This can be cash, weight, or products. Evaluate cost by hour, day, week, or year for each option. Evaluate each opportunity by what would be gained if you chose an alternative opportunity. Add up the costs associated with each opportunity. Make your choice based on which opportunity cost is higher.
What accurately describes how costs and benefits are calculated?
When a financial decision is being made, the more choices you have will help determine the best opportunity. To calculate the opportunity cost, compare each opportunity based on a similar unit of measurement. This can be cash, weight, or products. Evaluate cost by hour, day, week, or year for each option. Evaluate each opportunity by what would be gained if you chose an alternative opportunity. Add up the costs associated with each opportunity. Make your choice based on which opportunity cost is higher.
What does the word opportunity cost means?
Opportunity cost means that there is an opportunity to get something in a lower cost. __by Alondra Rico
How to calculate Mark up opportunity cost?
For Retail Price question....If Retail price is 12,995. Markup % is 12. what was the wholesale price?
What calculates the opportunity cost?
Opportunity cost is something for the next porpose.
When you calculate the value of things you give up to get something else you are determining your?
When you look at the cost of giving up something to get another thing you are looking at opportunity cost. You are estimating which option is better for you.
Is opportunity cost a relevant cost?
Yes, opportunity cost is a relevant cost because it can be used in something more productive.
