Opportunity Cost Principle

By Anand Prakash

THE CONCEPT OF OPPORTUNITY COST

The value of the best alternative sacrificed when taking an action. The opportunity cost of any choice is all that we forego when we make that choice. Opportunity cost is the most accurate and complete concept of costthe one we should use when making our own decisions or analyzing the decisions of others.

 The opportunity cost of commodity is the amount of second commodity that must be given up in order to release just enough factors of production or resources to be able to produce one additional unit of the first commodity. Suppose that the resources required to produce one unit of commodity P are equivalent to the resources required to produce 3 unit of commodity Q. then, the opportunity cost of one unit of P is three unit of Q.

What does it cost you to go to the movies?

Let us go to movie, 10min. from campus. Use up scarce funds to buy movie ticket. the opportunity cost of the movie consists of two things. 1. to buy watch for daily use. 2. a higher score economics exam. on his

Most of us are used to thinking of cost as the money we must pay for something. But economics takes a broader view of costs, recognizing monetary as well as nonmonetary components.

You won a free ticket to see cricket match (which has no resale value). Football match is performing on the same night and is your nextbest alternative activity. Tickets to see football cost Rs. 40. On any given day, you would be willing to pay up to Rs.50 to see Football. Assume there are no other costs of seeing either performer. Based on this Information, what is the opportunity cost of seeing cricket match? (a) Rs.0, (b) Rs.10, (c) Rs.40, (d) Rs.50

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