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What is opportunity cost give an example?
The opportunity cost is time spent studying and that money to spend on something else. A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment). A commuter takes the train to work instead of driving.
Which cost is known as opportunity cost?
When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can’t spend the money on something else.
What is meant by opportunity cost principle?
The Idea of Opportunity Cost A fundamental principle of economics is that every choice has an opportunity cost. The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else; in short, opportunity cost is the value of the next best alternative.
How opportunity cost affect our life?
Opportunity costs can impact various – and critical – aspects of your life, including money, career, home and family, and other lifestyle elements. In general, it means having to choose one option over the other, be it money, time or lifestyle choices – and living with the consequences.
How do you get the opportunity cost?
The formula for calculating an opportunity cost is simply the difference between the expected returns of each option. Say that you have option A—to invest in the stock market hoping to generate capital gain returns.
How do you find opportunity cost?
What is variable cost example?
A variable cost is a corporate expense that changes in proportion to how much a company produces or sells. Examples of variable costs include a manufacturing company’s costs of raw materials and packaging—or a retail company’s credit card transaction fees or shipping expenses, which rise or fall with sales.
What is the meaning of implicit cost?
An implicit cost is any cost that has already occurred but not necessarily shown or reported as a separate expense. Put simply, an implicit cost comes from the use of an asset, rather than renting or buying it.
How can Identifying your opportunity costs help you make better choices?
You can use opportunity cost as a way to compare options for yourself, to understand the stakes at play for others in negotiations, and to present new options to potential customers. People make decisions by comparing the perceived cost of option A to that of option B.