With the increasing demand for goods and services, the quantity of resources is getting reduced day by day. Now in order to overcome the phase of scarcity, consumers must plan the next best alternative. Here comes the role of Opportunity Cost, which refers to the cost of all the items or products which we give up in order to meet our alternative needs and demands. Therefore as per the Opportunity Cost Principle, we must be aware of the profit which we will receive from the next alternative.
The Opportunity Cost Concept plays a major role while making the managerial decisions. With the help of opportunity cost, we can make the best use of the alternative to get the scare resources. We can, therefore, say that the opportunity cost not only refers to the price of our activity but at the same time defines the price of the price of products which we have already given up.
Examples of Opportunity Cost
- We can consider the fact that a man decides to go by bus to his office instead of driving his car. To reach office by bus it takes 60 minutes while driving it takes hardly 40 minutes. Hence his Opportunity cost is 20 minutes.
- Mohan buys a burger with the amount of that money, he could have bought cold drinks or a pizza. Now the opportunity cost is the pizza and cold drink.
- A student might drop the idea of going to the movie in order to study for his exams. Hence the opportunity cost is the cost of the movie and the fun of seeing it.
Therefore we can say that Opportunity Cost refers to the basic concepts of economics.
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