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Opportunity cost

Hi there again,

Just another question about the opportunity cost of the converted wing. Why wouldn't the opportunity cost of the converted wing be calculated at $120 x unutilised number of bed per day.

For example, in the 'first column' of the spreadsheet the rate of utilisation is 40%. So in reality, we have 60% of beds (units) being un-utilised per day which would have been utilised if the wing was not converted, which would bring us to the following calculation: 60% x 8 units (beds) = 4.8 beds per day x 365 days per year = 1752 beds per year x $120 = $210,240.

And for the second column, we would have an opportunity cost of: 40% x 8 units (beds) = 3.2 beds per day unutilised x 365 days per year = 1168 beds per year unutilised because the wing has been converted to to a telemetry unit. Therefore giving us an opportunity cost of 1168 beds per year x $120 = $140,160.


Solution Preview

Firstly, let's turn to the definition of opportunity cost:
<br>"The valued alternative foregone in the pursuit of an activity."
<br>This is a hallmark of anything dealing with economics, because any action that you take prevents you from doing something else. The ultimate source of opportunity cost is the pervasive problem of scarcity. Whenever limited resources are used to satisfy one want or need, there are an unlimited number of other wants and needs that remain unsatisfied. Herein lies ...