Opportunity Cost

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Opportunity Cost Paper

If you could understand and apply one key concept in economics that would most affect the decisions you make in both your personal and professional life, it would be opportunity cost. That is a bold statement; therefore, you must understand why and how this statement is true. First, you must understand a definition: opportunity cost is the value of a resource in its next best use. These thirteen words are so deceptively simple that to many these words defy understanding. It is helpful to begin with a universal illustration.

The most valued resource to most people is time. It is finite for everyone, considering people have 24 hours a day in which they must allocate work, family, sleep, fun, and other non-fun,
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The following data will set the stage for your decision:

Table 1

Price, Costs, and Profits for BASIC and FEATURES
| |BASIC model |FEATURES model |
|Price per unit |$10.00 |$15.00 |
|Variable costs |4.00 |5.00 |
|Fixed overhead allocation |5.00 |6.00 |
|Profit |1.00 |4.00 |

You must understand a few of the terms before you proceed. The variable costs reflect the wages and benefits you pay the people who are making the calculator, the materials that go into it,and anything else that you have to pay for if you are making the calculator. If you are not making calculators, you can save these direct or variable costs; however, there are other costs in a factory that must be covered even if you temporarily stop production. Taxes, insurance, and the supervisory or management personnel are fixed or overhead costs that, at least in the short run, do not go away if we stop making calculators. Typically, these costs are allocated to
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