We make choices as consumers every day.Opportunity cost is defined as a person's ''next best alternative'' or the best of what you give up when you make a choice. Think of a recent decision you made regarding your career. What was your opportunity cost for making that choice? What was your best alternative?
Let us first discuss the concept of Opportunity cost in detail.
OPPORTUNITY COST PRINCIPLE
The opportunity cost or alternative costs are the returns from the second best use of the organization's resources or here in this case the individual's capability.
For example a farmer who is producing wheat can also produce potatoes with the same factors.
Therefore the opportunity cost of a quintal of wheat is the amount of output of potatoes given up.
In Economics, The opportunity cost of anything is the next best alternatives that could be produced instead by the same factors, costing the same amount of money. The opportunity cost thus are the costs of sacrificed alternatives. A machine can produce either X or Y. The opportunity cost of producing a given quantity of X is the given quantity of Y which it would have produced.
wTherefore it should be remembered that
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This explains the concept of OPPORTUNITY COST PRINCIPLE