Opportunity Cost Essay

Lets start with a small introduction to the topic Opportunity Cost. Opportunity speak to is the cost of any activity measured in terms of the care for of the adjacent better alternative forgone (that is not chosen). It is the sacrifice related to the second best plectrum available to someone, or group, who has picked among several mutually exclusive choices. The probability cost is also the cost (as a lost avail) of the forgone products after do a choice.Opportunity cost is a key concept in economics, and has been described as expressing the basic relationship between scarcity and choice. The notion of chance cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to pecuniary or pecuniary costs the real cost of come forthput forgone, lost measure, pleasure or any other benefit that provides utility should also be considered opportunity costs. direct lets look at Opportunity Cost from the point of la bor.Opportunity costs may be assessed in the conclusiveness-making process of production. If the workers on a farm can take a leak either one trillion pounds of wheat or twain million pounds of barley, then the opportunity cost of producing one pound of wheat is the twain pounds of barley forgone (assuming the production possibilities frontier is linear). Firms would make rational decisions by calculation the sacrifices involved. Looking at Opportunity Cost from the point of Implicit and lucid Cost.Implicit costs are the opportunity costs that in factors of production that a producer already owns. They are equivalent to what the factors could earn for the libertine in alternative uses, either operated within the firm or take aim out to other firms. For example, a firm wages $300 a month all year for rent on a warehouse that hardly holds product for six months each year. The firm could rent the warehouse out for the unused six months, at any price (assuming a year-long d emand requirement), and that would be the cost that could be spent on other factors of production. declared 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 hurl been spent on other factors of production. Now lets look at some real life examples from my life inorder to commiserate 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 eating house 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 withdraw and let go. Opportunity Cost also works in regards to time. Eg- I only have tw o 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.Heres another example- When for the first time I decided to invest my saved specie lying with me. I had two options that I could do with the money I had. My first choice was either investing in shared capital or leave the money in a savings Account that earns only 5% per year. I invested in Mutual Funds and it returned 10%, here Ive benefited from my decision because the alternative would have been less(prenominal) profitable. However, if the Mutual Fund would have returned only 2% when I could have had 5% from the Savings Account, then my opportunity cost would have been (5% 2% = 3%).To summarize Opportunity Cost, scarcity creates choice, and every choice has value to us. That value can be looked at in terms of benefits and in terms of cost. Value is not always measured in financial terms but sometimes measured in terms of time or enjoyment. The opportunity cost of a choice is what must be given up in order to take an opportunity. Its not the opportunity we chose, but the value of the next best alternative we didnt choose. Every major choice has an opportunity cost.