--%>

Define the term opportunity cost concept

Define the term opportunity cost concept.

E

Expert

Verified

Opportunity Cost: It refers to the cost of foregoing or providing up an opportunity. This is the cost of the next best option. It shows the income of benefit foregone since an exact course of action has been considered. Like Adam smith observed, when a hunter can bag a deer or a beaver within the single day, the cost of deer is a beaver and the cost of beaver is like a deer. A man that who marries a girl is foregoing the opportunity of marrying other girl. A film actress can either do modeling work or act in films. She can’t do the jobs at the same time both. Her acting within the film results in the loss of an opportunity of doing modeling work. Similarly, if an old building is proposed to be utilized for a business, where rent of the building is the opportunity cost. This cost concept was first developed through an Austrian economist, Wieser.

This cost concept plays a significant role in managerial decisions. This is useful in determination of relative prices of various goods. This is also useful in fixing the price of an output factor. Above everything, this help in the best allocation of available resources.

   Related Questions in Managerial Economics

  • Q : Illustrates the important areas of

    Illustrates the important areas of managerial economics as a tool for decision making?

  • Q : Income effect of a wage increasing When

    When the income effect of a wage increase is more powerful in that case the substitution effect, the: (1) labor supply curve will be “backward bending.” (2) unemployment rate will rise since more people will be available for work. (3) valu

  • Q : Implicit Labor Contracts If workers

    If workers accept lower wages in exchange for employer assurances of enhanced job security, employment agreements are illustrations of: (i) credentialism. (ii) comparable worth. (iii) specific training. (iv) an implicit labor contract. (v) human capital.

  • Q : Illustrates the Scope of Managerial

    Illustrates the Scope of Managerial /Business Economics?

  • Q : Specific Training by Human Capital A

    A firm which provides its workers along with substantial exact training tends to: (i) pay such individuals premium wages to try to make sure retaining these workers. (ii) require workers to sign legal contracts of peonage and indenture. (iii) increase

  • Q : How most goods and resources are

    In countries employing decentralized markets for nearly all decision making: (1) Private individuals select how most resources and goods are allocated. (2) Nonhuman resources should be individually owned. (3) Elaborate economic plans are planned and enforced by law. (

  • Q : Higher rates of unemployment Higher

    Higher rates of unemployment in between nurses, clerical workers and teachers are a likely consequence when a government policy is adopted based on the doctrine of: (1) comparable worth. (2) equal marginal productivity per dollar. (3) equal pay for eq

  • Q : Define the areas of Scope of Managerial

    Define the areas of Scope of Managerial /Business Economics?

  • Q : Illustrate when Price is greater than

    Suppose that price is greater than average variable cost. When a perfectly competitive seller is producing at an output therefore price is $11 and the marginal cost is $14.54, in that case to maximize profits the firm must: w) continu

  • Q : States the term Production States the

    States the term Production?