Opportunity Cost

Decent Essays
Name-Agnibesh Mukherjee.
Class- PGDM(Finance), Sec- D.
Roll- PGDM12F004, Class Serial No- 4.
Economics Assignment- Opportunity Cost Lets start with a small introduction to the topic Opportunity Cost. Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the "cost" (as a lost benefit) of the forgone products after making a choice. Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice". The
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Explicit costs are opportunity costs that involve direct monetary payment by producers. The opportunity cost of the factors of production not already owned by a producer is the price that the producer has to pay for them. For instance, a firm spends $100 on electrical power consumed, their opportunity cost is $100. The firm has sacrificed $100, which could have been spent on other factors of production. Now lets look at some real life examples from my life inorder to understand Opportunity Costs better.
Opportunity Cost Examples that I myself have been across- I have only Rs 1000 to spend and I have two choices, I can eat at a nice restaurant or buy a good cricket bat instead. I spend my Rs 1000 on buying the cricket bat, then the opportunity cost of that choice is the delicious meal I did not choose and let go.
Opportunity Cost also works in regards to time. Eg- I only have two hours of free time. I could either go to a movie or meet a friend of mine. I choose to spend my time at the movie, the opportunity cost of this decision is the time I could have spent enjoying the company of my friend.
Here 's another example- When for the first time I decided to invest my saved money lying with me.I had two options that I could do with the money I had. My first choice was either investing in Mutual Funds or leave the money in a Savings Account that earns only 5% per year. I invested
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